What Is An Appraisal?A home appraisal is the process of getting a qualified professional opinion on the market value of a home. Lenders use this information to determine if a loan on the property is a good risk. There are many factors that determine the value of your home — age, condition, square footage, lot size, location, improvements, recent past sales, new zoning, etc. The appraiser will compare your property with similar homes that have sold recently. It is very important that the appraiser use current information on comparables in your neighborhood. Be prepared to provide this information if you do not feel the appraiser will have the latest facts. You can access this information on the Internet or from your real estate agent. Residential appraisal’s typically range from $300 to $500, and are ordered by the lender as part of the application process. Why Does a Buyer Need an Appraisal?Mortgage companies want to know that the sale price is consistent with the fair market value of the house before they approve your loan. Most appraisals come out near the asking price, but if it doesn’t the lender may not approve your loan. They need to be sure that if you default on the loan, they will be able to recover their investment. Choosing an AppraiserWe recommend that you choose a state licensed appraiser. These are the only appraisers who meet the federal requirements of appraisal courses, continuing education, experience and licensing tests. Each state certifies appraisers according to federal guidelines, but only half the states require actual licenses.
Here are some things to look for: Is the appraisal company a professional organization? Are the fees reasonable? Will they process the report quickly? Can they provide references? Are they licensed in your state? What is the appraiser’s specialization? Are they knowledgeable and experienced in your area and with your property type? Does the appraiser have access to the best data sources?
The Appraisal ProcessAlthough appraisals must comply with federal guidelines, they are still a subjective process. It can sometimes be difficult to determine the market value. Remember market value is not necessarily what the property is worth, but what someone will pay for it. When there are fewer houses on the market than buyers, market values increase. When there is an abundance of homes, values drop. In active markets, and those where properties vary within neighborhoods, it may be difficult to establish exact values. Also each appraiser is different. Some tend to appraise on the high side; others are more conservative. Two separate appraisers working on the same property, with the same data may come up with two different values. This is important to remember if the appraised value comes out below the agreed upon purchase price. The appraiser will inspect and measure the home (although this is not considered a home inspection) and compare it with at least three comparable homes in the area that have sold within the past six months. They will then adjust the appraisal to account for difference in the properties. After the AppraisalThe value of the appraisal will affect your loan. If the appraised value is different than the purchase price, the lender will base the loan on the lower of the two numbers. This may hinder your ability to purchase the house. If you get an appraisal that is lower than the asking price, there are some things you can do. First contact the appraiser and ask for a review of the appraisal. Go over the report with the appraiser, they may not be aware of some improvements or recent changes to the local market. If you are still unhappy with the appraisal or disagree with the results, the buyer or agent can talk to their lender. They may be able to review the market value with other appraisers or order another appraisal. Get a copy of your appraisal. Sometimes, if the mortgage lender orders the appraisal, the appraiser gives copies only to the lender. Be sure your lender and appraiser agree to give you a copy of the appraisal. Another option is to renegotiate the purchase price with the seller using the appraisal as a bargaining tool. You could also increase your down payment to the mortgage company. They may overlook the difference if you put more money down, thus lowering their risk. Most important, make sure you feel comfortable with your appraiser and with the final report. Remember, you can always get a second opinion.
NEW FHA APPRAISAL REQUIREMENTS Effective April 1, 2009, FHA appraisers must now provide the following: The Market Conditions Addendum (Fannie Form 1004MC/Freddie Form 71) At least two comparable sales that occurred within 90 days of appraisal date A minimum of two active listings or pending sales in addition to the three closed comparables Bracketed listings using both dwelling size and sales price when possible Adjusted active listings to reflect the list-to-sales price ratio Adjusted pending sales to reflect contract sales price when possible The original list price and any revised list prices Reconciliation of adjusted values of active or pending sales with adjusted values of closed comparable sales Absorption rate analysis Known or reported sales concessions on active and pending sales
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M. Peg Delp Realtor, CRS., GRI., CHMS, CPMS, CDPE, Associate Broker, Realtor®
700 East Atlantic Ave. Delray Beach, FL 33431 Office: 561.436.5560 
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