What does an appraisal consist of?

When appraising a home, the appraiser will usually find 3 comparable properties in the same area, and compare the sales prices of the 3 to come up with a value for your home.

the appraisal often breaks down the value of the land that the home sits on, as well as the home itself, and often some appraisers detail the value of any garages or tool sheds or seperate units.

There are 3 approaches that are used to determine the value of an appraisal. There is the sales comparable approach which is the most common. This is when they use comparable sales of other homes in the area as the main determination of a home's value. There is an income approach which will use the income that a property can produce to help determine a home's value. Lastly, there is a cost approach which helps to determine a home's value by looking at the cost of a properties components, land and improvements.

The price values from the three different methods should all arrive at the same value. Homes built in rural areas can be more difficult to estimate since there may not be comparables in the area.

In that case the appraiser may have to do two things to get an accurate appraisal:
1. Interviews with real estate agents and the appropriate government real estate tax personnel
2. Touring the property, taking into account the square footage, floor plan, number of rooms and baths, upgrades, overall condition of the home and the neighborhood

Typically an appraiser will make adjustments to home values value based on the differences between comparable properties. For example, if the subject home is in "good" condition, and a comparable home is in "fair" condition, the appraiser will adjust up the value of the subject property. Likewise, if the subject property does not have a finished basement but a comp does, the appraiser will make a downward adjustment to the subject's value.

An appraiser cannot inflate a value in order to get a loan done for a borrower who may need additional cash out or on a over priced property. This practice is referred to to as inflating the appraisal. It is illegal and of no benefit to the home owner. If you refinance with an inflated appraisal then you run the risk of owing more then your home is worth.

Having exact sales comparables in advance of an upcoming appraisal can go a long way in helping you estimate the value of your home. Find out how much homes in your neighborhood have sold for recently, and note down the addresses, dates of sale and sales prices and pass this information along to your new mortgage company before they order an appraisal.

» DISCLAIMER: The information contained in this article on 'What does an appraisal consist of?' 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.