Ok here is a question we’re sure most loan officers and processors have heard from a borrower “How can the appraiser really know what my house if worth – I mean they were only there for like 20 minutes”. We’ll give everyone some background on the actual appraisal process so they can better answer this question in the future.
This is an understandable question because most of the appraiser’s work is completed in the office doing research.
The appraiser will research the market area to determine if property values are increasing, decreasing, or remaining stable. They need to know neighborhood trends and what the current inventory of available housing is. They research public records to obtain information on the property and to ensure it complies with local zoning, among other things.
During the visit to the property when the appraiser completes their inspection, they will physically measure the property. This is where the GLA is obtained-NOT from public records or the tax assessor. During the inspection, the appraiser will note materials in each room, condition, any amenities, any external items that impact value (i.e., RR tracks behind the house, a gas station across the street, or an ocean view).
Once the appraiser has inspected the property, they will search for comparable sales through the MLS and other local data sources. These properties will be as similar as possible in regards to design, GLA, room count, condition and amenities. They may also talk to local real estate professionals active in the market. Once comparable have been selected, the appraiser must drive by each of them to observe any influences that will impact value.
Once all of the research is done, the appraiser will complete the appraisal report and develop their opinion of value.
In developing an opinion of value, the appraiser considers recent sales of similar properties, which we know as Comparables. Rarely are two properties exactly the same, therefore the appraiser must account for differences between the property that sold and the property being appraised. These differences are reflected as “adjustments.” Adjustments are added or subtracted from the sale prices of the comparables in the Comp Grid to indicate an adjusted sale price. The adjusted sales prices will reflect the probable range of value for the subject.
Examples of some adjustments you’ll see are for GLA differences of 100 SF or more, 1 car garage vs. 2 car garage, varying bathroom counts, quality or condition.
One very confusing adjustment since implementation of the UAD is for quality and condition. The UAD requires the appraiser to utilize one of 6 options for these 2 items. Properties must be reported with the most accurate overall rating. This means that the property being appraised and a comp may both be in overall C3 condition, however the Comp may have some inferior upgrades so there will still be an adjustment to reflect this. In these cases, the appraiser should have comments clearly explaining this in the report.
Ideally all features and amenities the Subject has will be bracketed by the comps. While this is not an appraisal requirement-USPAP, FHA, Fannie and Freddie do NOT require bracketing-it is typically an UW requirement for the lender. If bracketing is not possible, the appraiser should explain why in the report.
ABOUT NATIONWIDE APPRAISAL NETWORK- NAN is an industry leader in appraisal management, providing a unique approach to appraisal management through customization, innovation, and quality. NAN website – 888.760.8899