Why is an appraisal necessary?
The lender orders the appraisal to obtain an accurate description of the property and an independent opinion of value. The lender uses the appraisal to document that the real estate is appropriate collateral and determine whether the value of the property is sufficient to support the lending decision.

Why isn’t the consumer considered to be the client when he or she pays the appraisal fee?
Federal banking regulations require the financial institution to be the client, regardless of who pays the fee.

How does the appraiser develop the value opinion?
The appraiser researches market data, public records and talks with buyers, sellers and real estate brokers active in the market area. Data researched includes sales, leases, and current listings of similar properties. Other data include land sales and residential construction costs. After all factors affecting the value are considered, the appraiser develops an opinion of value and prepares an appraisal report.

What information should I provide to the appraiser?
The more information the appraiser has about your property, the better he or she will be able to develop a credible result. The appraiser will be interested in knowing if there are any private agreements or restrictions, easements or rights of way, encroachments, “agreed to” arrangements with abutters (e.g., fences, walls) on the property, etc. The appraiser may ask about the property’s title, sales and rental history, and occupancy. He or she might ask if the property is under a pending purchase and sales agreement or option and, if so, the details about the agreement or option. If the property sold in the past three years, the appraiser may ask about the details of the transfers. Finally, the appraiser may inquire about physical characteristics of the property, including any additions, permits, etc. If you are hiring the appraiser directly, the appraiser will want to know what the intended use of the appraisal will be. (NOTE: If you are engaging the appraiser to prepare an appraisal for a federally-related transaction, you should know that the lender or the lender’s agent is required to engage the appraiser).

What should the appraiser do when he or she inspects my home?
Based on the client’s intended use of the appraisal, the appraiser determines whether an interior and/or exterior inspection or no inspection is required. Under many circumstances, the lender will require a full viewing of the property including an exterior and interior inspection. Assuming that a complete inspection is required, the appraiser inspects the site, site improvements, and building improvements. The appraiser considers the site’s size, shape, topography, drainage, and any other attributes that may affect value. He or she views the site improvements (e.g., paving, fences and walls, landscaping) to determine their contribution of value to the property. Finally, the appraiser inspects any structures. Some of the items considered are building style, number of stories, size, number of rooms (including bedrooms and baths, etc). He or she observes the structure’s condition as an aid to estimating depreciation. In addition, the appraiser considers the property as a whole, including the dwelling and any other improvements as well as any visible encumbrances (e.g. power lines, encroachments). Finally, the appraiser considers the property in relation to the neighborhood. An appraiser’s inspection and a home inspection are different. An appraiser gathers information to develop a value opinion and a home inspector gathers information to identify construction features, structural integrity and any needed repairs.

What is a comparable sale or comparable listing?
A comparable sale is a recent sale that is similar to the subject property in terms of physical and functional attributes and location. A comparable listing is a current listing that is similar to the subject property in terms of physical and functional attributes and location. Comparable sales and listings are used in the sales comparison approach. In most cases, the sales comparison approach is the most reliable indicator of value for a residential property because it most directly reflects the actions of buyers and sellers in the market.

Why does an appraiser make “adjustments”?
In developing an opinion of the value of a property, an appraiser considers recent sales of similar properties. Generally speaking, the sales that are the most similar to the property being appraised are the best indicators of value. However, since rarely are two properties exactly the same, the appraiser must account for differences between the property that sold and the property being appraised. These differences are called “adjustments.” Adjustments are added or subtracted from the sale prices of the comparables to indicated an adjusted sale price for the property being appraised.

In what circumstance would an appraiser use the cost approach and/or sales comparison approach?
The cost approach is based on the premise that an informed purchaser would pay no more for the subject property than the cost of constructing a substitute property with the same utility. Differences between the sales comparison approach and the cost approach are particularly evident when the property being appraised involves older improvements where depreciation due to age and functional obsolescence are difficult to estimate, or when the improvements are relatively unique or specialized and there are few comparable properties. If completed correctly, under ideal circumstances the indicated value by the cost approach should be similar to the estimated value by the sales comparison approach.

The appraiser did not complete an income approach to value. Is that ok?
In most cases, yes. The income approach is based on the relationship of anticipated benefits (dollar income) to value. The income approach in residential appraising generally consists of little more than a gross rent multiplier analysis (the sale price of a property divided by its income potential). The gross rent multiplier analysis is very reliable in markets where homes are rented and sold frequently. However, the income approach is not applicable when the property appraised is located in a neighborhood where most homes are owner-occupied.

What elements should a credible appraisal include?

• A clear, accurate description of the subject property
• Sales that are the most recent and most comparable
• Comments that explain important issues in the appraisal
• An opinion of value supported by the analysis of the comparable sales

What should I do if I believe a correction is needed to the appraisal report?
First, write a letter or email to the lender describing the problem and provide any evidence you have. For example, if the appraisal has an incorrect living area size for the subject property, provide factual evidence which supports your position. If you believe the appraiser selected comparables that were not the most comparable, submit a list of the comparables you would like him or her to consider. The lender will provide this information to the appraiser and request the appraiser to consider what’s been submitted.

After asking for a reconsideration of value, the appraisal remains flawed. What are my options?
You may request the lender order an appraisal review assignment or to order a second appraisal (keep in mind the lender is not required to do either). An appraisal review is completed by a different appraiser who will verify the facts and data in the appraisal, search for additional comparables and provide a conclusion as to whether the comparables used in the appraisal are the most comparable. If the review appraiser does not agree with the opinion of value in the original appraisal, he or she will complete a sales comparison approach and provide his or her own opinion
of value.

The appraisal I am reading has codes describing elements such as condition, construction quality and location. How do I find out what they mean?
At the request of the lender/client, the appraisal report may be prepared in compliance with the Uniform Appraisal Dataset (UAD) developed by Fannie Mae and Freddie Mac. The UAD requires the appraiser to use standardized responses that include specific formats, definitions, abbreviations, and acronyms. Look through the appraisal for the UAD Definitions Addendum. In most cases, the addendum will be in the appraisal. If not, either request it from the lender.