Appraisals

A real estate appraisal is a professional opinion of the market value of a property.   The property that is the subject of an appraisal is called a subject property.   The estimation of value is important to both the lender making the loan as well as to the homebuyer  to ensure the sales price is an assurate reflecton of a the market value.  

Appraisers are licensed by the State of Texas after completing classroom hours as well as internship hours that familiarize them with the local real estate market.  Typically, the lender orders the appraisal once the home inspection is complete and any repairs that need to be done to the home are negotiated between the buyer and the seller.   

What information is shown on an appraisal report?

* Specific details about the subject property.  These are shown on a grid alongside at least three other comparable homes (comps) that have usually sold within the last six months and are in close proximity to the subject property.    Appraisers are required to use comps that are generally similar in age, size and type of construction to the subject property.  If no recent comps exist, the appraiser may have to use comps from outside the subdivision. 

* Details about the neighborhood characteristics, including lot size, type of area (subdivision, on acerage, etc) and statements about the overall real estate market in the area.

* Any major items that may be defective, in need of repair, or may pose a safety hazard to the occupants.   An old roof that needs replacing or a foundation in need of repair would be an example.  

* Statements about issues which may positively or negatively impact the resale value of the property.

* Interior and exterior photos of the subject property and exterior photos of the comps.   

 What method is used to calculate the value?

There are two methods of calculating value-The Sales Comparison Approach Method and the Cost Approach Method.

The Sales Comparison Approach Method is calculated by making adjustments in the value of the comps based on the factors of the subject property.  In other words, they make a mathematical estimation of what the comps would have sold for if they had exactly the same charachteristics as the subject property.   This is necessary since no two properties are exactly the same.   The full list of adjustments is summarized in a grid, usually located on the first few pages of an appraisal report.  A normal appraisal will have three comps, but more comps are sometimes required by the lender depending on the circumstances.  Lenders consider this method as the true value of the property.   

The Cost Approach Method is an estimate of how much it would cost to rebuild the property if it were destroyed.  This method is typically used by insurance companies to determine the amount of coverage that needs to be placed on the property. 

AN APPRAISAL AND INSPECTION ARE NOT THE SAME THING ! ! !

Many buyers assume that an inspector and an appraiser are one in the same.  They are not.  Although an appraiser will note any obvious problems that they happen to notice, they do not perform a detailed inspection of the property.   An appraiser’s main function is to determine value, not overall condition.  A home inspector performs a much more detailed inspection of the property, and provides a report that summarizes all items that need to be repaired, replaced or serviced.  They also serve to warn the buyer about conditions that may cause future problems that are not yet obvious.  Although lenders do not require a home inspection, buyers should always have one performed.