What Is An Appraisal

An appraisal is a written report of the estimated value of a property prepared by a certified real estate appraiser.

There are several types of appraisals, that each have their own forms. A drive by appraisal, is when an appraiser simply drives by your home and gives an estimated value to your property. They will still take photos and find comparables, the advantage is that they are more convenient to you and generally cost less. The drive by appraisal, is the underwriters decision and not yours or your mortgage professionals.

Most appraisals require the appraiser to inspect both the interior and exterior of the home. This type of appriasal is typically used to get the most accurate value for your home. The appriaser is able to take certain items into account that would not be possible on a drive by appraisal. For example custom cabinets, fireplaces, master bathrooms with a whirlpool tub, and hardwood floors are items that an appriaser could not account for if you just had a drive by evaluation of your home.

There is always the possibility that your appraisal can be inflated. This means the loan officer will ask the appraiser to raise the value over what the house is really worth. The danger to the borrower is you may wind up with a loan more then the house is worth.

There are three basic ways that a property appraiser uses to obtain an opinion of the value. First is the income approach which is used primarily on commercial properties. On residential properties there is the cost approach and the market approach. The cost approach assertains value by how much it would cost to build the home in its present condition. The market approach has to do with how much the house would be worth if it was sold on the open market. For the purposes of a mortgage loan, the most weight is given to the value obtained by the market approach.

Getting your home appraised can cost you anywhere between $250 and $500+ depending on location of the property, size of lot, and type of appraisal.

Typically, when refinancing, the appraisal is paid for up-front (outside of closing) by the borrower upon inspection.

Typically, residential appraisals have a comparable sales approach and a cost approach. The comparable sales approach uses a comparison of similar properties which have sold and closed recently. The cost approach is an estimate of the actual cost of the dwelling plus the land.

» DISCLAIMER: The information contained in this article on 'What Is An Appraisal' is a collection of contributions by licensed mortgage professionals and is not the opinion of Broker Outpost LLC. Always consult a licensed professional before applying for a mortgage.