The Appraisal Process: What you need to know

The mortgage lending process requires an appraisal to determine the value of a property.  Home appraisals are an unbiased report on the worth of a house in the fair market, performed by a trained and licensed individual.

The home appraisal process to determine a homes value is very simple.  In fact, there isn’t much difference between how you and your real estate agent might have determined the value of your house.

Lender’s Choose the Appraiser

The main difference is that the appraisal is done by a certified appraiser of the banks choosing.  Lenders do this for the obvious reason of keeping people from swaying the values in their favor.  In addition, banks also choose the appraiser’s because it is required by the Appraisal Independence Requirements, or AIR.

AIR has strict rules that prohibit any influence on the appraisers.  In order to keep compliance, many lenders use appraisal management companies.  These companies sprinkle different appraisers all over the place to reduce the risk of someone getting a personally influenced appraisal.

In order to ensure that appraisals are impartial the Appraisal Independence Requirements, or AIR, prohibits a lender’s loan production staff from having direct contact with—or influence upon—any appraisers.

To reduce the risk of violating AIR many lenders now hire appraisers via appraisal management companies. These companies work with many residential appraisers in order to cover a more diverse housing market and to reduce the risk of improper influence.  So the management companies work a lot like jury duty.  They assign at random to prevent the outcome from being rigged.

Home Appraisal VS Home Inspection

An appraisal differs from a home inspection.  A home inspection is done usually during the due dilligence period and the main purpose is to judge the safety and integrity of a building.  Inspectors are there to make sure that there are no major issues that the homebuyer should know about.

Whereas the appraiser is pretty much just a specialized form of a real estate agent or broker.  A home appraiser’s job is to collect data so that a property value can be determined.  Although they might take a look around the house and take pictures, the only major issues they’ll notice are the obvious.

What Does an Appraiser Look At?

The appraisal is done by judging the initial impression of the property and they keep track with a rating system.  An appraiser will simply walk through the house taking notes and pictures.  As they do the walk through they are answering questions like:

  • Is the roof leaking?
  • Is the Furnace Working?
  • Are there any noticeable plumbing leaks?
  • Is there mold/termites in the house?
  • Is there running water and electricity?
  • What is the overall condition of the property?

Again, most likely they will only take note of these issues unless they are pretty noticeable.  They will only notice the issues that anyone with a little bit of common sense would notice during an initial walk-through.

The main data that a home appraiser is going to collect is information.  The Appraiser will have a tape measure with them to measure each room and the overall size of the house.  During the walk-through, appraisers will take note of any upgrades additions and the main house statistics such as:

  • How many Bedrooms/Bathrooms?
  • What is the size of each room?
  • How many stories?
  • What is the layout of the house?
  • What is the square footage?
  • Is the basement finished and have livable space?

To sum it up, a house appraisal is done by an independent third party representative.  The appraisal just take note of initial impressions about the overall condition of the house.  Appraisers don’t go into detail about all the technical aspects.

Primarily, appraisers are simply sent to collect data and compare that data to the current market data in order to come up with a value.

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