How Do Appraisers Determine the Value of a Home?
11-23-2021 • MHS Lending
Whenever you’re in the process of purchasing a home, you’ll likely need to get an appraisal at some point during the process. Appraisals are done in order to confirm that the amount the lender is giving the borrower matches the value of the home. This ensures that the price is fair for the house and is done by a licensed and trained appraiser who has experience in the area surrounding the property.
What is a home appraisal?Many people have heard the term appraisal before, but very few really know what it means. According to NerdWallet, a home appraisal is a licensed or certified appraiser’s opinion of the home’s value. Appraisers conduct research in the current market surrounding the property and complete a full inspection of the home to determine the value of the property. Home appraisals are a review of the property’s fair market value, and they typically happen within a week after the home inspection is final. Lenders use home appraisals to determine the risk of the loan and confirm whether the price makes sense in comparison to the property’s value. Appraisals are therefore unbiased property reviews that help lenders protect themselves against committing to more than they might be able to recover should the buyer default on the loan.
What do appraisers look for?When determining the value of the property there are a few key items on an appraiser’s checklist. First, the appraiser must assess the neighborhood characteristics and current market trends/ sale prices for similar properties in the area. Then they need to evaluate every aspect of the home itself. Starting with the lot size and square footages, all aspects of the property are evaluated. Appraisers are looking for homes in great condition, they’re checking out appliances, age of renovations, amenities like fireplaces and patios, and any home improvements to the home. Think about anything that would be a selling point for your home and they’re likely taking note.
What is included in an appraisal report?Investopedia states that typically appraisers use the Uniform Residential Appraisal Report from Fannie Mae for single family homes. These reports ask appraisers to describe the interior and exterior of the property, the neighborhood, and nearby comparable sales. The report often is expected to include:
- A map of the street where the property is located that also includes nearby compared property sales.
- Exterior and interior photos showing the front of the building, back of the building, and detailed shots throughout the home.
- Photos of other homes used in the comparison portion of the report.
- Total square footage of the property and explanation of how that number was calculated.
- Information like market sales data, public land records, public tax records, etc. that show how and why the appraiser came to the value they determined.