Home Appraisal - Merriam-Webster's Dictionary defines appraisal as, "a valuation of property by the estimate of an authorized person." This valuation is a determination of your property's market value, what it will likely sell for on the open market. So how is this "valuation" determined? Why does the idea of an "estimate of an authorized person" create so much apprehension about the process? What can you do to make your home appraise better? Is there anything you can do? What do you do if your home doesn't appraise well? Below are commonly asked questions that hopefully will give some clarity about home appraisals.

What is a home appraisal?
A home appraisal is a survey of a home by a professional for the property market value. In most cases an appraisal is done for a bank when a home is being approved for loan for the home buyer. The home appraisal is a detailed report that looks at such items as the condition of the home, the neighborhood, what similar homes are selling for and how quickly similar homes sell (to name a few). The appraisal may be a sales comparison or a cost/replacement estimate. There is also an income appraisal, but this is done primarily with commercial properties. The sales comparison will look at other properties in your neighborhood, what they are selling for and figure how they compare to your home. With a cost/replacement estimate the appraiser is looking at what it would cost to replace the home if destroyed; this more commonly used for new homes.
Important Note: An appraisal is not a home inspection! Appraisers only look for major concerns, they do not examine the home's full condition (i.e. examine the roof, appliances, etc.). For this reason a home inspection should still be requested by the home buyer before purchasing the home.

Who is an appraiser?
Appraisers are licensed by individual states and are held to strict ethical standards. Appraisers are the third party whose purpose is to set a fair market value on the home. Ideally the appraiser should not be connected with anyone involved with the home transaction.

Who picks the appraiser?
When an offer is made on the house the appraiser will normally be determined by the lender. The lender may have their own appraiser or contract with an independent party. Sometimes the bank will allow the seller to choose an appraiser, but only when that appraiser is already well known to them.

Can the seller get their own appraisal done?
Yes. The home seller may commission their own appraisal before selling the property to determine cost. However, this will cost anywhere from $300-500 and the bank most likely will not accept this appraisal but request another to be done by their own contact.

If not appraisal, how do I set the price for my home?
Home sellers can set their price of thier home with the help of a realtor using a comparative market analysis (CMA); the CMA is not a substitute for an appraisal but will give a good idea on setting an asking price (usually 5-10% more than the market price for your area).

How can you prepare your home for appraisal?
Prepare for your home appraisal like you would for a home sale. You are in essence re-selling your home. Make sure all the maintenance you can do is done; this includes clearing and trimming the yard to the painting your home - hopefully most of this was already done for the sale and should at most need only a minor touch up. Be polite to the appraiser and give them full access to your home; work with them not against. Inform the appraiser of your home improvements. Let them know about the new windows, new floors, the finished basement, etc. And finally don't be caught off guard. Do your homework! Know what similar homes are selling for in your neighborhood. This is something that should be done before setting your selling price. But in case your home has been on the market for a month or two, keep your research current. Let the appraiser know about similar homes and what they have sold for, especially if you know why a particular home that is like yours sold for less, let them know why your house is different.

What if the appraisal is low?
An appraisal that comes in lower then the asking price can jeopardize the loan and ultimately the sale. The lender will generally only loan up to 80% of the appraised value. The most common result is that the seller can lower their asking price. Or the seller and buyer can negotiate and meet at a price in-between. If the buyer still wants the home badly enough they may put more money down; but this may still not guarantee their loan as the lender will still view it as negative equity. The final option is to dispute the appraisal. Before disputing with an appraisal do your homework. Look at the homes in your community that have sold in the last 6 months and see what the differences are that may make your home more valuable. Perhaps there is a sale that the appraiser missed, perhaps other homes do not have the renovations and improvements you have done, perhaps the appraiser is not familiar with your type of home or neighborhood, etc. Building this case may be a good idea even before the appraisal. This will prevent you from getting rushed by the timeline after the appraisal is done. This is something you can ask for your realtor to help with as they usually have a vast knowledge of your market area. Once you have the case, present it to the lender. They will likely get a new appraiser or request the same appraiser to reconsider it. If you do not want the same appraiser, make sure to specify this and ask for a second opinion.

What other aspects of the appraisal can hurt the loan?
By in far the appraisal value being lower than the asking price is the most detrimental. However, other factors may cause the lender to refuse the loan or require further contract negotiations. These concerns would result from property conditions that may require the home buyer to do more investing in the property to keep it valuable, such as upkeep on a private road. Your realtor can help you with these types of objections and altering the contract to meet the lenders concerns.

     The above is an introduction to answer some basic questions about the appraisal process. Please look at the links to the left for more detailed information. Now, if you are interested in what your home may be worth check out Zillow for fun! This online program that uses Google Maps to show what homes in your neighborhood are selling for or may be worth. Of course I would suggest caution as the estimates are +/- 35% so do not use this as good data but rather for fun: http://zillow.com/ Happy appraising!

Links

Appraisal Institute
www.appraisalinstitute.org
The Appraisal Institute is an international membership association of professional real estate appraisers, with more than 18,000 members and 99 chapters throughout the United States, Canada and abroad. Its mission is to support and advance its members as the choice for real estate solutions and uphold professional credentials, standards of professional practice and ethics consistent with the public good.

American Society of Appraisers
www.appraisers.org
The American Society of Appraisers is committed to fostering professional excellence in its membership through education, accreditation, publication and other services. Its prestige is intended to contribute to the growth of its membership and to the appraisal profession.

The Appraisal Foundation
The Appraisal Foundation, a not-for-profit educational organization dedicated to the advancement of professional valuation, was established by the appraisal profession in the United States in 1987.

The Appraisal Subcommittee
www.asc.gov
The ASC's mission is to ensure that real estate appraisers, who perform appraisals in real estate transactions that could expose the United States government to financial loss, are sufficiently trained and tested to assure competency and independent judgment according to uniform high professional standards and ethics.

Appraisers-net
www.appraisers-net.com
A nationwide community of appraisers and professionals who have established themselves as leaders in the field.

FREA - The Foundation of Real Estate Appraisers
www.frea.com
The Foundation of Real Estate Appraisers (FREA) was founded in 1991 to fill a gap in the market for appraiser continuing education. At the time. obtaining education was expensive and difficult. It involved earning a designation that required thousands of dollars in classes from an association. and years of subservient service to someone who was already designated. FREA began offering continuing education classes in the San Diego area and within a few months had more than 150 instructors teaching classes all over the country.

National Association of Independent Fee Appraisers (NAIFA)
www.naifa.com
National Association of Independent Fee Appraisers (NAIFA) is one of the oldest and most respected Real Estate Appraisal Organizations. Members hold the IFA, IFAS, IFAC and IFAA designations.

National Association of Real Estate Appraisers
www.iami.org/narea.html
The National Association of Real Estate Appraisers (NAREA) is a Professional Organization founded in 1966, making available highly qualified Real Estate Appraisers to those requiring Professional Appraisal Reports. NAREA is one of the largest Professional Associations in the United States, with more members in more cities than any other organization.

National Association of Review Appraisers & Mortgage Underwriters
http://iami.org/nara.html
Established in 1975, the National Association of Review Appraisers & Mortgage Underwriters (NARA/MU) is a non-profit organization dedicated to maintaining professional standards and promoting ongoing education in the fields of Appraisal Review and Mortgage Underwriting.

National Residential Appraisers Institute
www.nraiappraisers.com
Fill A Gap Between Appraisers and Real Estate Agents: Instruct in the proper valuation and techniques used in appraising. Help sales people become better at listing properties at a more salable price. Give sales people more knowledge to carry out their everyday real estate practices.