Contrary to what you might believe, appraisers don’t derive the value for a property. Instead, they just confirm that a home is worth the value that you bid.
Appraisers look at several different areas to determine if the value you agreed to pay is near the market value for the home. Appraisers primarily look at the subject property, the neighborhood, improvements on the home, comparable sales in the area, and the site.
Using Comparable Properties
A large part of the process of coming up with a property value is comparing to the homes that have sold in the area recently. Some lenders have specific requirements, such as homes within a one-mile radius, homes of a certain age, or homes of the same square footage.
Typically, appraisers have free reign when choosing the comparable properties, though. They take the comparable sales that they feel best meet those of the subject property. They then make necessary adjustments to the price, either up or down, depending on how the value is affected. For example, if the subject property has 4 bedrooms but the comparable only has 3 bedrooms, the subject property would get a boost in value for the extra living space.
Viewing the Home
Obviously, an appraiser has to walk through your home to give it a value. During this walk through, the appraiser looks at the home’s size, layout, and how well you’ve maintained it. They also look for upgrades and ask about certain features of the home. If there is something in particular that you want the appraiser to know about the home, make sure you mention it.
The Comparison Methods
Once the appraiser has all of the necessary information, he will use one or more of the following valuation methods:
- Sales comparison – This is the most common method where appraisers compare your property to the comparable sales in the area. The appraiser will adjust the price as necessary according to the features in each home.
- Cost approach – This approach uses the cost of the labor and material to build the home to come up with a value. The appraiser will take into consideration the depreciation and any improvements you made. The appraiser then takes the value of the lot, plus the value of the improvements, minus the depreciation.
Once the appraiser is finished with the comparison, he will write up a report. The report will show in detail all aspects of the home including the interior and exterior. It will include measurements, sizes, and features of the home. It will also include information on the comparable sales used to come up with the value of the home. The pictures of the comparable sales will only be exterior pictures, though.
Fighting the Appraised Value
If you don’t agree with the appraised value the appraiser comes up with, you can dispute it. Just let the lender know that you don’t agree with the value and want to dispute it. The appraiser can then go back over your reasons why you think the home is worth more and come up with a final decision.
Appraisers have a tough job because they have to reconcile the price for both you and the lender. They work for the lender essentially, making sure that there is enough collateral in the home for them to make a loan. Appraisers tend to be fair and non-opinionated, but do know that you have the chance to dispute the value if you don’t agree.