A licensed appraiser certifies the estimated value of your potential home based on a physical inspection during his onsite visit.
Determining Your House ValueThe value of residential real estate is estimated by comparing the house with similar properties that have recently been sold. The appraiser starts by looking at the neighborhood to find comparable houses. He may also use properties in similar neighborhoods that share similar characteristics of lifestyle, residential income level, surroundings, the average age of the home, and home values.
The Value of a Licensed Appraisal & InspectionAn appraisal helps establish the property’s market value. The bank requires an appraisal when you request your home loan, because the lender wants to make sure the property is worth the amount they are investing in it.
What Is an Appraiser?An appraiser is an individual licensed by the state of Colorado. They must complete coursework and internship hours to familiarize them with the real estate markets.
The lender you choose may use an appraiser on their staff, or contract with an independent appraiser. If you are allowed to choose the appraiser, and the lender is not familiar with them, their results may be subject to review before the results are accepted.
Your appraiser should be an objective third party. This should be someone who has no financial or other type of connection to any person involved in the sale of your prospective home.
Appraisals are very detailed reports and differ from property to property. These are some of the things they include:
- Details about the property with side-by-side comparisons of three similar properties.
- A description and evaluation of the area’s overall real estate market.
- Statements regarding problems the appraiser feels are harmful to the value or resale.
- Notes about any seriously flawed areas.
- Whether the home is in a development, stand alone acreage, etc.
Residential Appraisal MethodsThere are two common appraisal methods used for residential properties:
- The Sales Comparison
With this method, the appraiser estimates the market value by comparing it to similar properties sold in the area.
Since no two properties are exactly alike, the appraiser compares properties. He makes adjustments to make the features in-line with the property he is assessing.
- The Cost Approach
This method is most useful for new properties. The appraiser will estimate how much it would cost to replace the structure if it was destroyed.
What the Appraisal Means to YouYour personal approval of the prospective house is done early in the loan process. The final loan commitment hinges on a satisfactory appraisal because the bank wants to be sure the investment is covered in case of default.
If the property appraises lower than the sales price, the loan could be declined. Other items on the appraisal can also be a problem.
The lender studies the appraisal carefully before deciding whether or not the property qualifies to serve as security for the loan you request.
Appraisers make notes about obvious problems they see. They do not test appliances, walk on the roof or check the chimney. This should be done with a home inspection.