The Appraisal Process

An appraisal is a fair market value derived from comparable sales in the neighborhood. It can affirm your offer price or block your transaction entirely. All appraisals must conform to guidelines set by the Federal Government, but every appraisal is ultimately a subjective analysis of a property's current market value. To determine current market value, an appraiser will compare the price of your home with that of at least three comparable homes that are in the area and have sold within the past year, then adjust for differences between comparables and subject property such as lot size, square footage, updating, etc. An appraiser will physically measure and inspect the home (which doesn't qualify as a home inspection) to compare, and may also take photographs to include in the report with floor plans and a site map. Appraisers are licensed by the state under federal guidelines. All appraisers must abide by professional and ethical standards set by the Government. Our community has a variance in home styles, neighborhood values, etc. The appraiser selected should be familiar with our community.

Potential Problems

Inexperienced appraisers with a lack of training can result in appraisal problems. Appraisers are certified by the individual states under federal guidelines, but only half the states require actual licenses. Most states do, however, require appraisers to pass a written examination and have 75 hours of continuing education and 2,000 hours of direct experience through an apprenticeship. Most appraisers also have to abide by professional and ethical standards set by industry organizations.

The appraiser selected may not be familiar with your community.

Home Inspections Are Not Appraisals

A property appraisal is a document that provides an estimate of a property's market value. Lenders require appraisals on properties prior to loan approval to ensure that the mortgage loan amount is not more than the value of the property. Appraisals are for lenders; home inspections are for buyers.

The Federal Housing Authority

The Federal Housing Authority (FHA), which is part of the U.S. Department of Housing and Urban Development (HUD), requires lenders to obtain appraisals of properties securing FHA-insured loans. FHA requires appraisals for three reasons:

    1. To estimate the market value of the property.

    2. To make sure that the property meets FHA minimum property standards for health and safety.

    3. To make sure that the property is marketable.

The FHA appraisal process will note property deficiencies that are readily observable and found not in compliance with HUD's minimum property standards. These deficiencies may not be the same as those items noted in a home inspection report.

When Should I Use An Appraiser?

You will likely need the services of a real estate appraiser whenever an estimate of the value of your real estate is required. Most commonly, this occurs when you apply for a real estate loan, either to purchase or refinance your home. You may also need a real estate appraiser to assist in the appeal of your property tax assessment, for insurance purposes, for probate and estate settlements or other reasons.