Even when things go as planned, purchasing real estate can feel like a daunting task: there are so many moving parts that must all come together for the process to run smoothly. One major aspect of the transaction is the appraisal process. What goes into an appraisal estimate, and what can you expect from process?

The appraisal inspection takes place after the seller has accepted your offer and a home inspection has occurred. The role of an appraiser is to provide an accurate, independent, and unbiased assessment of a property’s value. Appraisers are hired by the lender via an appraisal management company (AMC). To ensure that the value rendered is in fact unbiased, the appraiser selected to perform the appraisal is randomly selected by the AMC. The lender, borrower, seller, and borrower’s Realtor are prohibited from communicating with the appraiser. The report is technically “owned” by the lender and the value rendered is ultimately used to determine how much can be loaned to the borrower, as opposed to the contract purchase price agreed upon by buyer and seller. When a borrower is making a sizable down payment the lender may waive the requirement for an appraisal.

The appraiser will spend anywhere from 15 minutes to an hour at the physical property, but the appraisal process itself can take over a week. There are many factors that an appraiser considers when analyzing a property. Most lenders require the appraiser to utilize Fannie Mae’s Uniform Residential Appraisal Report but regardless of format, appraisers are tasked with examining similar factors: location, neighborhood, construction quality, parking accessibility, and age of the home are just some of the components reviewed. Appraisers will consider details such as overall square footage, number and size of rooms, functional layout, code compliance, and interior condition. Once the appraiser has verified these details with a physical visit, they will research other comparable homes, or “comps”, that have sold in the surrounding area to get a better understanding of market value. At a minimum, an appraiser is expected to include at least three comps, but many appraisers will include upwards of four or five if available.

In spite of all of this information, it can be difficult for an appraiser to make a true apples-to-apples comparison among homes: a comparable home with the same square footage and number of bedrooms might also include a pool, whereas the property you are considering does not. Another comparable home might not have a pool, but it might also be slightly smaller on a much busier street. The appraiser will make comp adjustments that take these differences into account. There are many different approaches an appraiser can take when making adjustments. They often use a combination of techniques to justify these adjustments. Appraisers are held to rigorous industry standards, so it is in their best interest to be able to back up any data they provide. Unfortunately, it is always possible to receive an inaccurate appraisal. While appraisers are not permitted to speak with buyers or sellers regarding the value of the home, your lender is allowed to challenge the final report in writing.

Have questions about the appraisal process or how it might impact your home purchase? One of our Mortgage Loan Professionals can walk you through the details and help you better understand how appraisals factor into your financing.

Need to get connected to a Mortgage Loan Professional? Call us anytime, evenings and weekends included, at (303) 394-2121. Reach out today for personalized guidance tailored to your situation.