Frequently Asked Questions
What is an Appraisal?
An Appraisal is the act or process of developing an opinion of value. The preparation of an Appraisal involves research into appropriate market areas; the assembly and analysis of information pertinent to a property; and the knowledge, experience and professional judgment of the Appraiser.
What is an Appraisal? Video
What is the role of the Appraiser?
The role of the Appraiser is to provide objective, impartial and unbiased opinions about the value of real property — providing assistance to those who own, manage, sell, invest in and/or lend money on the security of real estate.
The Appraisal Institute features videos on Appraisers (who they are, what they do, and their value add):
What qualifications must Appraisers have?
At minimum, all states require Appraisers to be state licensed or certified in order to provide Appraisals to federally regulated lenders. However, Appraisers who are members or affiliates of recognized professional organizations like the Appraisal Institute go beyond these minimum requirements. They have fulfilled rigorous educational and experience requirements and must adhere to strict standards and a code of professional ethics.
What are the components of an Appraisal?
Most Appraisals are reported in writing, although in certain circumstances, an Appraiser may provide an oral Appraisal. A written Appraisal report generally consists of: a description of the property and its locale; an analysis of the “highest and best use” of the property; an analysis of sales of comparable properties “as near the subject property as possible”; and information regarding current real estate activity and/or market area trends.
What is an Appraisal report?
An Appraisal report:
Clearly states the kind of value being determined, such as fair market (used for taxes), replacement (used for insurance coverage), liquidation (used for bankruptcy or business dissolution), etc.
Describes the property being valued.
Details the procedures used to estimate the value; such as:
Analysis of comparable sales;
Estimation and analysis of income (if applicable) and
Relation of the appraisal values to a specific point in time (e.g. fair market value of the real estate as of January 1, 2009).
Includes the signature of the appraiser responsible for validity and objectivity.
Specifies the personal qualifications of the appraiser.
Sample Appraisal Form/Report
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
How to read an Appraisal - Video
What are the most important considerations in the valuation of real estate?
The value indicated by recent sales of comparable properties, the current cost of reproducing or replacing a building, and the value that the property’s net earning power will support are the most important considerations in the valuation of real estate property.
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.
Video on Adjustments and the Principle of Substitution
What is the role of the Appraiser / Appraisal in the mortgage process?
Real estate Appraisals are critical components in real estate financing and risk management. Lenders order Appraisals to get a stronger understanding of risk relating to the underlying collateral offered in a mortgage. Lenders want to know how much that property would bring in an open market so they can ascertain that the loan is well enough supported by the collateral. Mortgage Appraisals are not technically provided to confirm a sales price, although they can help both lenders and consumers in making sound financial decisions. It serves neither the lender nor the consumer to enter into a mortgage loan that is more than the value of the property. In some cases the appraisal may not match the contract price. But just because an appraisal comes in below – or above – the contract price doesn’t mean it’s flawed. The agreed-upon contract price may be above market value, for example. In those situations, the buyer and seller often renegotiate the contract at more favorable or balanced terms.
A qualified Appraiser knows how to conduct a thorough market analysis and make appropriate adjustments. Ask the lender for the qualifications of the Appraiser and specifically, whether they are professionally designated by a professional Appraisal organization. Remember that your home purchase is one of your most important lifetime investments. The money spent on a quality Appraisal is well spent.
The Appraiser’s client for Appraisals completed for mortgage transactions typically is the lender – not the buyer or seller. Lenders order appraisals to get a stronger understanding of risk relating to the underlying collateral offered in a mortgage. Neither the lender nor the consumer benefits by entering into a mortgage that is more than the value of the property. The Appraiser has no vested interest in the outcome of the appraisal and should render services with independence, objectivity and impartiality — no matter for whom the Appraisal is conducted.
Think of the Appraiser as a mirror, reflecting the market. Reliable, credible opinions of value help stabilize real estate loans and investments, promoting socially desirable real estate development.
How is the process changing with the recent NAR Commission settlement agreeement?
The recent settlement by the National Association of Realtors (NAR) has sent ripples through the real estate industry, leaving many agents, brokers and consumers perplexed. As the dust begins to settle on this multi hundred-million-dollar agreement, it is an opportunity for the consumer and the appraiser to work together.
The lawsuit that prompted this settlement was initiated by a seller who felt they were unfairly treated in the real estate commission process. Traditionally, it has been expected that when hiring an agent to assist in selling a home, there would also be a 3% commission to the seller (works with the buyer) broker/agent. This practice, though not legally mandated in most states, had become the norm.
The National Association of Realtors (NAR) and many other larger Real Estate Brokerages chose to settle. This decision was not solely about the monetary impact; it marked a significant shift in how commissions will be handled in the future. The traditional buyer agent commission (compensation model) is now under scrutiny, and this change could reshape the real estate landscape.
For real estate agents, this settlement presents a critical juncture to reassess the value they bring to the marketplace. The question brokers and agents must now ask themselves is whether they provide a value equivalent to the commission they receive. This self-reflection is essential, not only for agents but also for the consumer and the appraiser who must go forward based on the shifting dynamics.
The settlement creates a unique opening for appraisers to enhance their role in the real estate transaction process. Historically, buyers relied heavily on their agents to guide them on property values. However, with agents’ commissions, impartiality and roles being questioned, appraisers have the chance to position themselves as indispensable and impartial experts in property valuation. As unbiased third parties that provide impartial, data-driven valuation reports, appraisers can offer invaluable services directly to buyers and sellers. This impartiality is a significant selling point, especially in a market where agent advice may be perceived as biased due to compensation structures.
The NAR settlement represents more than just a financial agreement; it signals a shift in the real estate industry for both the consumer and the appraiser. The appraiser can be an essential participant in the real estate transaction long before the mortgage financing appraisal is needed. The consumer needs to view the appraiser as part of their home buying / selling process team and involve them as early as possible to provide accurate, unbiased property valuations.
ValcoMD provides competent and transparent appraisals for BOTH sellers and buyers.
Read more
Can I get a copy of the Appraisal report for my mortgage?
Home buyers and borrowers have a right to obtain a copy of the Appraisal report. Even though the Appraisal report is ordered to help assess lender collateral risk, buyers are entitled to a copy of the Appraisal report. Federal regulations require lenders to provide property buyers with free copies of Appraisal reports no later than three days before the loan closes. Home buyers and sellers should first understand what an Appraisal is and how it’s used. Real estate Appraisals for mortgage finance applications are prepared for the bank or financial institution so they can better understand the collateral risk in making the loan. This can be confusing, because home buyers typically pay for the Appraisal and receive a copy of it.
The Appraisal is, in fact, legally owned by the lender — unless the lender “releases its interest” in the document. However, lenders must provide property buyers with free copies of Appraisals no later than three days before the loan closes.
Only by reading a copy of their Appraisal can consumers double-check its accuracy and question the result. Also, it makes a valuable record for future reference, containing useful and often revealing information — including the legal and physical description of the property, square footage measurements, list of comparable properties, description of the general market area and current market trends in the vicinity.
What services do Appraisers provide?
In addition to residential and/or commercial Appraisals — and depending upon an Appraiser’s designation and qualifications — he or she can provide/assist with some or all of the following:
Estate planning and estate settlements
Tax assessment review and advice
Advice in eminent domain and condemnation property transactions
Dispute resolution — including divorce, estate settlements, property partition suits, foreclosures and zoning issues
Feasibility studies
Expert witness testimony
Market rent and trend studies
Cost/benefit or investment analysis, e.g., financial return on remodeling
Land utilization studies
Supply and demand studies
When hiring an Appraiser, what types of questions should I ask?
The following questions would be appropriate:
What professional designations do you have and from whom?
Are you licensed or certified in the state in which you live?
How long have you been in practice?
What level of experience do you have in this particular market and with this type of property?
Are you familiar with property in this neighborhood?
What types of clients have you had (homeowners, estates, lenders, relocation companies)?
Most professional Appraisers have a website or a social media presence. Do your research. In today’s competitive market, appraisal fees for residential properties are likely to be comparable
What are some things to watch out for?
Never use the services of an Appraiser who offers to purchase what they appraise!
Never use the services of an Appraiser who charges a percentage of the item's value for the Appraisal.
Don't use an Appraiser who has either a current or future interest in the value of the item unless it is disclosed to you and disclosed in the Appraisal report.
How proximate should the Appraiser be to my house? How far is too far?
The issue isn’t so much “distance” or “how far is too far,” rather the question that should be asked, “Is an appraiser from outside of my area competent to appraise my property?” Some appraisers work in many geographic areas and are knowledgeable and competent in all of them. Other appraisers have a limited range in which they normally appraise and they may not have the data or the experience to be competent outside their local market.
What does an Appraisal cost and how long does it take?
It depends on the nature of the property. A proper, credible Appraisal of residential one family residence is approximately five (5) business days after initial inspection, while a commercial Appraisal of a large business or complex machinery and equipment can take several weeks or months. The cost varies significantly as well. Fees are set by the individual Appraiser and can be based on a flat fee or an hourly, half-day or full-day basis. The Appraiser's fee varies with the type of Appraisal, reporting requirements, turn time as well as the Appraiser’s experience and expertise. Be sure the Appraiser provides you a fee schedule or estimate before work has begun and be sure your Appraisal agreement defines the scope of work and when and how the report will be delivered.
What does an Appraiser do at a typical house and how long will it last?
Depending on the size of the home and whether or not there are any interruptions, the typical time is anywhere from 20 to 60 minutes. The Appraisal inspection includes: exterior photos of improvements (all 4 sides), photos of any additional amenities such as views, pools, outdoor living areas, spas, detached garage, outbuildings and so on, and lastly a walk through of all living areas and photos of all major rooms such as the kitchen, family room and all bathrooms.
What can I do in advance of the Appraisal inspection appointment?
The best thing you can do to help is make sure the Appraiser has easy access to the exterior of the house (gates aren't locked, etc). Trim any bushes and relocate any items that would get in our way while we measure the structure. On the inside, make sure the appraiser can get to appliances like furnaces and water heaters. Please make sure all pets are not in any areas that will be inspected by the Appraiser regardless of “friendliness”. Leaving them with a neighbor, friends or family is the best suggestion. No person can be in the Appraiser’s photos so please have everyone that lives at the home know what is going on and that they can not be in the room with the Appraiser.
The following items, if available, will help your appraiser to provide a more accurate appraisal in a shorter period of time. Ask your Real Estate Broker/Agent to provide any of these if you do not have copies or access:
Any records on the purchase of the property for the last three year as well as a summary of repairs and renovations of the property and when they were completed.
Any "Homeowners Associations" agreements or, if applicable, condo agreements or fees .
A copy of the current listing agreement and broker's data sheet and Purchase Agreement if a sale is "pending".
A bill for your most recent real estate taxes which should also contain a legal description of the property.
A “brag sheet” or property profile outlining the improvements, features and benefits of the home. It is best that this is in writing, the Appraiser inspects many properties and may forget parts of verbal summaries.
If you or the buyer is applying for an FHA loan, the Appraiser will need to access your attic. Also ask your Real Estate Broker/ Agent as to address and repair things like chipped and peeling paint inside and outside, handrails, and other health/safety items.
Maryland has new smoke and carbon monoxide detector laws. Please make sure you are in compliance.
Anything else that you may think will affect the value of the housValcoMD has implemented a system that allows us to prepare and deliver a higher-than-average volume of work, at a better quality than the many of our local as well as national peers.e.
The Appraiser appreciates your feedback and information; however, during the inspection give them their space and time to thoroughly and professionally complete the inspection. Following them and talking with them during the inspection may distract them and slow down the process. If the Appraiser has any questions, she will ask. Try to ask your questions before or after the inspection. Ask the Appraiser for his email address so that you can forward any of these items or follow up with a question.
Sometimes ValcoMD uses a two step Inspection Process? Why do do multiple people have to inspect my house?
ValcoMD has implemented a Collaborative Valuation system that allows us to prepare and deliver a higher-than-average volume of work, at a better quality than the many of our local as well as national peers. As such an Appraiser in training may perform the initial inspection alone or sometimes with a Certified Training or Supervisor Appraiser which depends on scheduling, complexity, a variance to tax records, or a number of other factors. We may have to re-inspect or perform a duplicate or extra step to adhere to Client directives or requests. We apologize for any inconvenience as it affects the borrower, occupant, seller, Client, or anyone else. All we ask is that you be understanding of how, what, and why we do what we do. We are striving to consistently, credibly, and competently deliver this and more; however, from time to time we still are asked to explain how and why our process is different from other Appraisers or the last Appraiser someone dealt with. Click here for details of our Collaborative Process.
What is a MPR?
MPRs, or Minimum Property Requirements, are what FHA, USDA or VA loan Appraisers look for to ensure a home meets certain standards. Unlike the Appraisal process for a conventional loan, the FHA/USDA/VA isn’t just looking to determine the home’s fair market value. Certified Appraisers are also required to ensure that the home meets certain Minimum Property Requirements (MPRs). A few common MPR issues that could cause complications with the loan approval include but are not limited to:
Chipped and Peeling Paint - I the home is built in 1978 or before, there could be lead based paint,
Handrails - Should accompany steps where possibly someone could fall,
Roofs - Generally should have at least 2-5 year remaining useful life and there should not be any evidence of moisture penetration, regardless of age. The Appraiser will probably inspect the attic,
Mechanical Systems - The furnace, HVAC, Hot Water Tank, Fireplaces. Stoves, etc are expected to have a “reasonable future utility” as well as properly installed and vented. The appraiser may turn on all of the systems during the inspection,
There are others; however, these are considered to be the most common.
Remember, the Appraiser is NOT a home inspector. That is a separate process that ValcoMD strongly recommends.
What should I do if I believe a correction is needed to the appraisal report?
Appraisers and Appraisals are not perfect. We all make mistakes. ValcoMD will always try to make things right. Appraisers are challenged daily to maintain independence while delivering an appraisal report that is supported, credible, meets industry guidelines and compliant with USPAP. We at ValcoMD have tremendous respect for the guidance provided by USPAP and the recent updates to the Ethics Rule. We strive to competently develop and transparently report ALL Appraisals to meet and exceed the requirements and expectations of USPAP while worthy of the public trust. For mortgage transactions, we cannot initiate a change to your appraisal, please contact your lender. As always, we are available to discuss and review your questions.
What is a Reconsideration of Value (ROV)?
In a significant move to further enhance fairness and accuracy in home appraisals, Fannie Mae, Freddie Mac, and the Federal Housing Administration (FHA) recently introduced new Reconsideration of Value (ROV) requirements that will go into effect in 2024. Borrowers can request a reconsideration of their property’s appraised value if they believe it to be inaccurate or biased. This appeal process must be clearly communicated to borrowers not only at the time of application but upon the delivery of their appraisal report, with detailed instructions on how to initiate an ROV request. Appraisers must adhere to new standards when responding to ROV requests and may not simply dismiss borrower-initiated ROVs simply because they disagree with the reasoning therein. The submitted evidence must be thoroughly reviewed and appraisers must provide a summary supporting their decisions, whether they agree to amend the appraisal or choose to uphold the original valuation. The new requirements also place a greater emphasis on transparency and accountability in the appraisal process.
I recently posted the following regarding the new ROV process: The ROV process must be respected and answered with detail. My priority is to write to the reader (buyer, seller, loan officer, agent/broker, etc). They are NOT appraisers. Downshift and explain to them what you did and how you supported it. Have an associate read it before you send it. Their conclusion should be, I now understand what the appraiser did and why. If not, rewrite it. It’s ok to disagree, just demonstrate your competency and transparency.
What is the difference between assessed value and market value?
While most states support the concept that assessed value approximate estimated market value, this often is not the case. Examples include when interior remodeling has occurred and the assessor is unaware of the improvements, or when properties in the vicinity have not been reassessed for an extended period.
What is the difference between replacement cost and market value?
Market value is based on what a willing buyer likely would pay a willing seller for a articular property, with neither being under pressure to buy or sell. Replacement cost is the dollar amount required to reconstruct a property in-kind (generally used for insurance purposes).
What is the difference between a Comparable Market Analysis (CMA) and an Appraisal?
Unlike Comparable Market Analysis (CMA), which are performed by Real Estate Brokers and Agents, Appraisals are conducted by duly certified valuation professionals who have met extensive education, experience and testing standards in valuation, including continuing education. CMAs do have a role to play in the valuation of a home for marketing and sale; sellers and buyers can use CMAs to help determine a price for a house to sell, buy or negotiate from. These are generally free as part of the Broker or Agents potential commission. Although many Brokers and Agents have market and marketing knowledge, most Brokers and Agents do not have formal valuation training.
A CMA can play a role in real estate valuation, but there are many reasons they should be regarded as a supplement to, and not replacement for, an Appraisal.
What is the difference between a Broker Price Opinion (BPO) and an Appraisal?
Unlike broker price opinions, which are performed by Real Estate Brokers and Agents, Appraisals are conducted by duly certified valuation professionals who have met extensive education, experience and testing standards in valuation, including continuing education. BPOs do have a role to play in the disposition stage; lenders can use BPOs to help price REO assets. In most situations, however, in many cases, lenders would be well advised to seek an appraisal.
BPOs are a largely unregulated service. BPOs and those performing them often are not subject to effective federal and state oversight. While Real Estate Brokers and Agents performing BPOs usually face no legal ramifications for non-credible and unreliable price opinions, banks using largely unregulated valuation services are exposed to compliance and audit risks. Institutions relying on potentially non-credible and unreliable BPOs for real estate valuation usually have no effective legal recourse in the event of fraudulent price opinions.
A BPO can play a role in real estate valuation, but there are many reasons they should be regarded as a supplement to, and not replacement for, an Appraisal.
What is the difference between an Automated Value Model (AVM) and an Appraisal?
AVMs can be non-credible and unreliable. AVMs are only as good as the data that generates them. Their end results rely on publicly reported data that are frequently inaccurate, incomplete or out of date. AVMs also may pull information from a MLS, county records or other third party data that does not correspond to data requirements and regulations governing a physical appraisal. AVMs can’t factor in property’s physical attributes. AVMs cannot consider physical factors that can affect property values such as a recent kitchen remodel, the quality of the neighborhood, convenient access to public transportation or the motivation of the seller. An actual appraisal typically requires an appraiser to visit the property and to perform a visual inspection. This enables appraisers to accurately report property information, which they can verify.
An AVM can play a role in real estate valuation, but there are many reasons they should be regarded as a supplement to, and not replacement for, an Appraisal.
Appraisals, AVMs and BPOs - The Difference Video
Can I use an Appraisal to negotiate with my lender to drop my Private Mortgage Insurance (PMI) ?
First you need to prove to your lender that you’ve actually built up approximately twenty (20) percent equity. And to do this, you’ll probably have to order a new appraisal of your home. Depending on your PMI payment, taking this step might make sense. Lenders and Private Mortgage Insurance companies have varied policies and procedures for this process. Contact them first to document the path you need to take.
What is the difference between an appraisal and a home inspection?
Home inspectors do not come to an opinion of value, do not use the same forms or perform the same type of inspection as appraisers. A home inspection is a third-party investigation of the available structure and appliances of a house, from the roof to the bottom. Commonly, a home inspection report will explain the amenities and the necessities of the home: air conditioning (weather permitting), electrical services, the condition of the heating system, the plumbing; then the structural integrity of the home such as the attic, accessible insulation, walls, floors, ceilings, windows, then the foundation, basement and visible structures.
Do appraisals come in high in a good market and low in a bad market?
Value appreciation of a specific property must be determined on an individualized basis, factoring in data on comparable properties and other relevant considerations. This is true in good times as well as bad.
What affects the value of my home the most?
Our research and experience has shown the three most significant factors are:
Location - Real Estate is all about the demands of the marketplace based on location which can both increase or decrease the value of any home,
Size - Both GLA (Gross Living Area or square footage) and site or lot size significantly impact value,
Homes in the immediate area - Both recently sold homes and homes not on the market can markedly influence the value of your home. That is your neighbors recent sales and how they currently maintain their homes influences your value.
This does not mean condition and other home specific details do not impact value. They do; however, it may not be as significant as the above three. Real Estate is unique and every home and neighborhood is different….
We have identified Sixteen (16) Factors that may hurt a home Appraisal
According to homelight.com (March 2020), you can support and maximize the value of your home prior to Appraisal on a few key high impact projects:
Investigate neighborhood trends and then match your home to match the area - Appraisers use the price of similar homes sold nearby, and adjust based on features and qualities of your home. If homes in your area are selling with new hardwood floors, updated appliances, and fabulous curb appeal, you should consider taking on similar projects to fetch the same or similar value.
Improve your curb appeal and take amazing care of your yard - You don’t need fancy topiaries or expensive fountains to make a difference, either. Simply keep the yard manicured and tidy.
Update your flooring for a consistent flow between rooms - carpeting that is visibly worn or has a noticeable odor, such as from pets, mold, or smoking can be a real impediment to value.
Compile a comprehensive list of upgrades - Don’t assume the appraiser will notice every fixture updated or siding replaced. Instead, provide the appraiser with a comprehensive list of upgrades you’ve done in the last four to five years. Include dates of projects and the associated costs.
Get a pre-listing inspection to tackle deferred maintenance - A pre-listing inspection can increase a property’s value because it uncovers issues with that home that were previously invisible to the owner. That might lead you to make a decision like repairing the roof (which a buyer could ask you to replace before they’ll close on a home) rather than splurge on that fancy backsplash for the kitchen which the new owners might gut upon move-in anyway.
Fix chipped and peeling paint - Chipped or peeling paint, especially on the exterior of your home, can invite wood rot and other structural issues and is especially problematic on homes built before 1978 when people still used lead-based paint.
What home improvement projects yield the best return on investment?
Given the above three factors, which are generally out of your control, you can influence the the value of your home with improvements. Typically, the basic upgrades – from painting the walls neutral colors to installing new fixtures – offer the largest returns. After those, homeowners can add value by undertaking renovation projects that bring their homes up to – but not beyond – community norms. Projects known to offer a good return on investment include garage door replacement, siding replacement, manufactured stone veneer, steel entry door replacement, deck addition and minor kitchen remodel.
What home improvement projects yield the worst return on investment?
Projects that take a home significantly beyond community norms are often not worth the price they cost in a resale situation. They certainly may benefit a homeowner’s quality of life, but if they don’t match what’s standard in a community, they’ll be considered excessive and may offer a very low return on investment.
sources: Appraisal Institute. The Appraisal Foundation, Class Valuation, homelight.com, Dustin Harris, ValcoMD.com