What’s an Appraisal?
Appraisals… we can’t live with em and we can’t live without em in the real estate industry. Unless you have cash to pay for your home in full, chances are you’ll pay for an appraisal on the property prior to closing. An appraisal is the most trusted source for information regarding a property, so let’s look at what an appraisal is and why it’s such a big part of most real estate transactions.
An appraisal is an official analysis of a property’s value based on the opinion of the appraiser conducting it. It also outlines the history of the property’s uses, construction, and size. The bank financing the purchase will only lend up to the appraised value, so they rely on an appraiser to justify the sales price. It’s proof of collateral, so to speak, in case the buyer defaults on the loan.
Realtors and Appraisers use the same database (called the Multiple Listing Service or MLS), so that we can both see the same information. So while I cannot perform an appraisal, I do think like an appraiser when determining a property’s value. Any analysis done by a real estate agent will be considered a Broker’s Professional Opinion (or BPO) on value, also known as a market analysis. My job is to identify which recent sales in the area are most comparable to the listing property, because these are the same properties an appraiser will use when evaluating the subject.
An appraisal is 1 person's opinion
An appraisal is based entirely on current market data and numbers, but it’s up to the appraiser to interpret and extrapolate the data to show the property’s highest value and best use. It’s not a perfect science, but appraisers have a vast knowledge in the values of various real estate amenities… this allows them to compare apples to oranges.
Since it’s impossible for two properties to be exactly alike, it’s not uncommon for appraisers to have differing values on the same property. Just like scientific data is interpreted by scientists, real estate data/comparable sales are open to interpretation by the appraiser, like how much value to give an amenity (for example, pools and outbuildings vary in value based on materials used, age, and features).
In fact, it’s common for different loan types to have different values on the same property.
An appraised value depends on more than the house
Different loan products have different rubrics for the appraiser to fill in, so the loan type can often affect the appraised value. For instance, VA loans require additional safety evaluations on the appraisal; the appraiser protects the bank and the Veteran who will live in the home (for instance by ensuring that building codes are met, stairs have railings, and there are no exposed electrical wires). We see more required repairs on VA loans than any other loan product, and VA loans can be more challenging to meet value because of the strict guidelines that the federal government set for VA appraisals. The VA insures the loan, so they take no chances when it comes to the safety and marketability of the property.
Like the VA loan, the FHA loan involves federal assistance. The buyer on an FHA purchase is exempt from private mortgage insurance that most conventional loans require, but they do pay mortgage insurance to the federal government who in turn insures the loan. The government insuring the property means that they do require additional safety checks.
When an appraisal is worth it
When listing a property for sale, a seller usually won’t need to obtain an appraisal, mostly for the reasons highlighted above. An appraisal is only valid for about 6 months at most, so any previous appraisals won’t help establish value. BUT, unless the square footage of the house or property changed, the previous appraisal can be a great source for info on the property. The square footage measured by an appraiser is considered the most reliable measurement.
Appraisals are helpful when listing unique properties, farm land, a business and building, and land. When an experienced listing agent cannot determine value based on comparable sales, they’ll usually call an appraiser for some guidance. So while most sellers are aware that they’ll need to pass an appraisal, they shouldn’t need to have one in hand when listing the property on the market for sale.
If you’re new here, hi! I’m Hope, I am a Georgia native and live in Houston County, GA with my husband, 2 kids, and 3 dogs. When I’m not selling real estate, you’ll find me spending time with my family, reading, listening to music, or playing with the dogs.
I’m a Realtor, an Accredited Buyer’s Representative, and a Military Relocation Professional. I love learning and problem solving… it’s my favorite! I’ve made it my mission to empower my clients to make well-informed decisions. I’ve been with Golden Key Realty, Inc. since 2012 and love my work family. If you have any questions about real estate in general or about buying, renting, or selling a property, let’s chat!