How do Home Appraisals Work?

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The question that is at the heart of a home appraisal is whether or not the asking price of the home you want is worth that amount. How much a lender will give you to buy a house or piece of property is determined by the value or worth of that particular piece of real estate.

Having a home appraisal is an important part of getting the financing you need to buy a home. The home appraisal is the opinion of an expert certified professional, licensed by the state who determines the value of a piece of property. If an appraiser determines that a house selling for $300,000 is only worth $250,000, then the house is overpriced. In such a case, the home appraisal protects the bank from having a piece of property that is worth less than what they invested. It also protects the buyer from paying too much for a house which they found perfect at first site. A home appraisal is often emotional for the buyer but it is a straightforward factor in making a decision that has significant financial consequences.

Appraisals for residential property are done by one of two methods. With the sales comparison method, the appraiser compares the home with several other homes that are similar in size and design that have sold in the neighborhood in approximately the same price range. The features that are compared may include such components as the total amount of finished and unfinished spaces in the home, the lot size, the age and the style of the house as well as garages, fireplaces, chimneys and porches.

The other method for appraising residential property is done by the cost method. This method is designed more the appraising new property and estimates the cost to replace the existing structure on the property if it were to be destroyed. The value of the land and depreciation are then used to determine the worth of the property.

The appraisal process begins with a physical inspection of the property both inside and outside. The appraiser may also look at real estate records from the local courthouse as well as recent listings from other real estate companies.

The appraisal report typically includes a description of how the value of the property was determined, the size and condition of the house, its permanent fixtures and descriptions of any renovations done to the house, indications of any serious structural problems, such as cracked foundations or wet basements, comments regarding the surrounding area, maps, photographs and sketches and a detailed market analysis that supports the appraisal. 

Comments (1)

Joseph F Pino
Pino Agency - Elmer, NJ

One most important factor is knowing the area. Too often appraisers come into an area and don"t know the market dynamics.

Nov 27, 2011 12:50 AM