The appraisal process is an orderly and concise method of reaching an estimate of value. The process has six major steps which include: definition of the problem, preliminary survey and appraisal plan, data collection and analysis, application of the three approaches to value, reconciliations of value indications, final estimate of defined value. This process assists the appraiser in reaching a sound conclusion. The major phase of this process involves the application of the three approaches to value which include the Market Data Approach, the Cost Approach and Income Approach. The three approaches are reconciled and the value via most applicable approach, in the opinion of the appraiser, is selected as the final estimate of value. In most residential appraisals, particularly those of single or two family dwellings, the direct sales comparison or market approach best reflects the actions of buyers and sellers and is the most convincing and defendable approach to value.
Because much private, corporate, and public wealth lies in real estate, the determination of its value is essential to the economic well-being of society. It is the job of the professional appraiser to determine these values by gathering, analyzing, and applying information pertinent to a property. Unquestionably, the professional opinion of the appraiser, backed by extensive training and knowledge, influences the decisions of people who own, manage, sell, purchase, invest in, and lend money on the security of real estate. And because the appraiser is trained to be an impartial third party in the lending process, this professional serves as a vital "check in the system,"protecting real estate buyers from overpaying for property as well as lenders from over lending to buyers.
The appraiser is not a whole house inspector, engineer, architect, electrician, plumber, H.V.A.C. technician or contractor. The appraiser briefly walks through the house to get an idea of the general condition and room count. An appraisal is not a guarantee of condition. The appraiser will ask about any visible problems and those which may not be visible, and will do his/her best to gauge any impact on value attributable to those problems. You are encouraged to seek the advice of experts if you have any questions about the structural or mechanical aspects
Just how much any particular individual improvement might add to your home's market value, what appraisers typically call the contributory value, can often vary widely from market to market, dictated by the wants and needs of each neighborhood. However, a local appraiser familiar with your market can help you figure out the best home-improvement value.
The appraiser gets his or her information from a wide variety of sources, including the local Multiple Listing Service, local tax assessors records, local real estate professionals, county courthouse records, private public record data vendors, interviews with sellers and buyers, appraisal data co-operatives and his or her own personal knowledge or office files from previous appraisals. The quality and reliability of each piece of information is considered by the appraiser.
The physical inspection of the real property being appraised can take from approximately fifteen minutes to several hours, depending upon the size and complexity involved. After the initial inspection of the property the appraiser spends time touring through the neighborhood or area. The purpose of this tour is to search for comparable sales (other properties that are similar to the property being appraised) that have sold within the last six months to a year or so. When the field work is finished, the appraiser completes the report at his office. The report can consist of a short form report (typically under ten pages) to a long narrative report which can sometimes exceed a hundred pages. A short form report usually takes between three to six hours to complete. A narrative report can take weeks or sometimes even months, depending upon the complexity of the assignment.
Typically, an appraiser needs to document the condition of the property, both inside and out, from the layout and features to degree of modernization including any updates as well as the overall quality of construction. This information will help to assist the appraiser throughout the valuation and comparison process. The appraiser estimates the square footage (GLA - gross living area), by measuring the exterior of the home. Non-living areas, such as garages or covered porches, aren't included in GLA, but are accounted for and considered in value separately. Finished basements are also calculated separately from the above-ground GLA. The local market will dictate the contributory value of the finished basement, which can be influenced by governmental regulations, the degree of modernization, the quality of the finish, and other factors. The appraiser will generally consider only permanent fixtures and real property. Because many above-ground swimming pools and small sheds are not permanent structures, they typically usually aren't included in the valuation. Depending on the specific installation process and local custom, however, an above ground pool or small shed might be considered part of the real property.
A survey of the house and property; A deed or title report showing the legal description; a recent tax bill; a list of personal property to be sold with the house if applicable; a copy of the original plans & specifications, The date and purchase price you paid when you purchased the property; a list of recent improvements & cost as well as any other information you feel may be pertinent.
Under the Equal Credit Opportunity Act, your lender must provide you with a copy of the appraisal report upon your written request. If you are dissatisfied with any information contained in your appraisal report, you should contact your lender immediately.