The appraiser's visit to a home may last less than an hour, but has a significant impact on a lender's final decision to finance a home. Banks make the majority of appraisal requests, and they rely heavily on the appraiser's determination of value in their lending decisions. While a licensed appraiser's valuation methods may be unclear to consumers, he follows a set of standardize practices called the Uniform Standards of Professional Appraisal Practice employed by appraisers across the country.
The appraisal process starts with the bank's formal request to a certified appraiser or an appraiser management company. Once the appraiser gets an assignment, he will visit the home to conduct a physical inspection. During the visit, the appraiser will measure the house and review its condition for any signs of disrepair, home improvements and deferred maintenance.
After the appraiser completes the inspection, he will complete the appraisal report and valuation process within five to seven business days. The appraiser's job is to find similar homes in close proximity that have sold in the last three to six months and determine the most probable amount the home will bring on the open market. If the home has any home improvements or additional features, the appraiser will adjust and account for them only if they add value to the home.
The appraiser documents and communicates his work to the lender in an appraisal report. The lender will determine the final amount to finance on the home based on the appraisal. In general, the lender won't finance more than the appraisal value, even if the contract price is over the appraisal amount. Borrowers can receive a free copy of the report at least three days before closing, according to rules set by the Consumer Financial Protection Bureau. Even though the borrower commonly pays for a house appraisal being conducted for a loan, the lender orders the report, so is the appraiser's client. The lender, then, is the owner of the appraisal and retains the right to use it exclusively.
While no two appraisers will value the home the same, the values should be within the same range. The lender may order multiple appraisals for the property if an appraiser's value comes back much lower than expected or if the appraisal contains inaccurate information. Additionally, a cluster of foreclosures in the neighborhood could offset the value of the home if there are few market-value sales to reflect its true value. To properly value the home, a competent appraiser will be knowledgeable of the neighborhood, its nuances, and any special features of the home, such as renewable energy or energy efficiency improvements.
- Wall Street Journal: Ten Tips for High Value Home Appraisals
- CNBC: Eight Ways You Can Improve Your Home Appraisal
- Consumer Financial Protection Bureau Adopts Rule To Improve Consumer Access To Appraisal Reports
- Brubaker and Associates Real Estate Appraisers and Associates: Frequently Asked Questions
- Appraisal Institute: Summary Appraisal Report - Residential
- Appraisal Institute: Standards of Professional Appraisal Practice
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