About Residential Real Estate Appraisals

A home appraisal is an independent valuation of a home to determine its market value.

In general, a home appraisal is organized by a lender and is usually paid for by a buyer. All loans require an independent appraisal.

The reason the lender requires an appraisal is that you may think a home is worth more money than it really is — leading you to make an offer that may be to high. If the appraiser leads the lender to believe the home is overvalued, lender may feel this is a risk and may not grant you a mortgage.

Basically, lenders want to protect themselves by ensuring the property you are considering buying a loan from their institution is worth its market value. The appraisal helps ensure that you, the buyer, do not end up having negative equity on a home.

Understanding an Appraisal Report

An appraisal is an estimate of the value of a specific property. The appraisal report is a detailed description of the process the appraiser used to reach the estimated value he placed on the property.

Appraisals can be delivered as an oral report, a letter report, a form or a narrative report. Narrative reports are the most complete appraisal format. A typical narrative report will contain the following sections and information:

  • An introduction — which is used to establish the appraisal’s purpose and to state any limitations that may exist
  • A factual descriptions section — which may include: photographic identification of the property; area, city, neighborhood and location data; zoning and taxes data; site data; description of improvements; and history
  • A data analysis section that includes the appraiser’s opinions — items in this section may include: market analysis; highest and best use of the land, as though vacant; highest and best use of the property, as improved; land value; sales comparison approach; income capitalization approach; cost approach; and reconciliation of the value indications to a final value estimate
  • An addendum — that contains a detailed legal description; detailed statistical data; leases or lease summaries; and the appraiser’s qualifications

Reading an Appraisal Report

Each part of an appraisal report should have a distinct purpose and should add to your understanding of the basis for the value determination.

Sections should build on one another and point to the same conclusion. Information used to make adjustments and reconciliation in the last portions of the report should be drawn from earlier sections.

At Connor Edwards, LLC, we specialize in delivering high-quality appraisals that are easy to understand. We will also answer your questions, provide relevant recommendations, and work with you to resolve any issues that may arise in the quickest, most convenient manner possible.

Source: Barron’s Real Estate Handbook, Third Edition

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