Understanding Appraisals

An appraisal is an unbiased professional opinion of a home’s value conducted by a licensed appraiser that provides a detailed assessment of a property’s value.  When an appraisal is used to obtain what’s called an “opinion of value” of a property for loan purposes, federal regulations require the lender or its agent to adhere to certain requirements in connection with an appraisal order. The lender or its agent contacts a state licensed or certified appraiser and identifies the property to be appraised and the intended use of the appraisal.

The appraiser’s scope of work includes the type of property appraisal to be performed (interior, exterior only or none), what approaches to value are required, and any lender-specific requirements.

Here’s a quick overview of the appraisal process:

• If an appraisal requires an interior inspection, an appraiser will contact the homeowner (or, in the case of a sale, an agent or the seller) to inspect the interior and exterior of the property. As previously mentioned, in rare instances an appraisal may not require an interior inspection.

• An appraiser will research county and municipal records, Multiple Listing Service (MLS) records, and other data services for information and documentation concerning the subject property and market area.

• An appraiser will review recent sales and listings of comparable properties that have similar utility, quality, age, and amenities as the subject property and are located in the subject property’s market area. In markets where few sales have recently occurred, comparable sales may be from nearby, similar, or competing neighborhoods.

• After data collection and analysis, the appraiser will develop an opinion of value by considering the indicated value(s) of the sales comparison approach, as well as the cost approach and/or income approach, if applicable. The values indicated by the approaches utilized will be reconciled to a final opinion of value. The appraiser will present his or her findings and conclusions in a report to the lender. If applicable, the lender will deliver the completed appraisal report to the applicant.  Keep in mind that not all transactions will require delivery of a completed appraisal.

Here is a quick rundown of the report itself, so you know what to look for:

A home appraisal is a detailed document, here’s a rundown of what you can expect to see included in a typical home appraisal report:

Property description (Page 1): An appraiser will provide information about the property’s location, age, size, and design. This will include square footage of the finished living area, floor plan, number of bedrooms and bathrooms, design and quality of construction, heating and cooling systems, landscaping, and other improvements (including items like pool, energy saving features, solar panels, accessor dwelling unit).  The appraiser will not consider moveable pieces of personal property (like furniture or an above ground pool) in their appraisal. The report will also include a description of the property’s condition, noting any significant defects or issues that could affect the livability and/or its value.  The appraisal may require certain repairs based on lender guidelines, health, safety, or structural issues, or other third party inspections to confirm if additional repairs are required.

Market analysis (Page 2): The appraiser may provide an analysis of the local real estate market, including recent sale prices of comparable properties in the area. Appraisers stay informed of local and national market area trends to estimate a home valuation within the broader context. Generally, appraisal reports will include a brief overview of comparable properties, relevant public records, and local market analysis to help the lender better understand how the subject property fits in.

Comparable sales (Page 2): The report will typically include a list of recently sold properties that are similar to the appraised property. The appraiser will compare the features of these properties to the subject property and provide a valuation based on these comparisons.

Valuation (Page 3): The appraiser will provide an estimated value for the property using one or more of the appraisal methods (sales comparison approach, cost approach, income approach). The valuation will take into account the property’s location, condition, size, and any unique features.

Photos: The report will typically include several photos of the property, both inside and outside. These photos are used to document the property’s condition and provide evidence of any significant defects.

Additional documents: The appraiser may include additional documents in the report, such as maps, floor plans, or zoning information. These documents provide additional information about the property and its location.

Appraiser’s certification: The appraiser will include a certification in the report stating that they conducted the appraisal in compliance with industry standards and guidelines. The certification also confirms that the appraiser has no interest in the property, that they received no compensation other than the appraisal fee, and that they have no bias or conflicts of interest.

loanDepot expects each appraiser to deliver an independent, fair, objective, and credible appraisal.  A credible appraisal must comply with the Uniform Standards of Professional Appraisal Practice (USPAP) and all regulatory requirements including the Federal Fair Housing Act, Equal Credit Opportunity Act (ECOA), as well as Investor and/or Lender/Client-specific requirements.

A credible appraisal must include the following - 

• A clear, accurate description of the subject property.

• Sales that are the most recent and most comparable to the subject property in the appraisal.

• Comments that explain important items about the property and the market in the appraisal.

• An opinion of value supported by the analysis of the comparable sales.

If you have any questions or concerns regarding your appraisal, please contact your loan officer to discuss.


The Importance of Appraiser Independence

loanDepot is committed to maintaining appraiser independence and ensuring an accurate and fair appraisal process. Independent third party appraisers are trained to deflect any attempt to influence the appraisal or value opinion, remaining independent, impartial and objective. The appraiser has the sole responsibility for the analyses, opinions, and conclusions contained in the appraisal. Appraiser independence is a critical element to protect the client and intended users and to enhance the public trust that appraisals contain credible opinions of value. Furthermore, both Federal and State law requires appraiser independence. Without public trust, mortgage investors could withdraw funds from the market resulting in a shortage of funds for residential lending. 

Home Appraisal Tips for Sellers

When selling your home, it’s important that the home doesn’t appraise for significantly less than the buyer agreed to pay. Unless you have a cash offer, a low appraisal could be a deal-breaker. Here are some ways to help your home appraise for the right amount.

1. Provide an Offer List

If you received more than one offer for your home, let your appraiser know. Multiple offers can show the appraiser that your home was priced well. Provide the appraiser a list with each offer you received.

2. Attend the Appraisal

As the seller, you’re allowed to be present when the appraiser does their walk-through. Accompanying the appraiser gives you the chance to point out any upgrades or improvements. This is your chance to make sure the appraiser doesn’t overlook those new cabinets or countertops you just installed. Even small upgrades can help your home appraise for a higher amount.

3. Tidy Up

You can’t change your home’s square footage or location, but you can – with a few affordable home renovation improvements – make your home look bigger, brighter, and more valuable. Here are a few actions you can take to tidy up your house before an appraisal.

  • Maximize your space by putting away countertop appliances and clutter.
  • Replace dim light bulbs with brighter ones.
  • Hang mirrors to maximize natural light and give the illusion of a bigger room.
  • Pull furniture away from the wall.
  • Pick up any debris in the front yard or backyard and give your garden some attention to boost your home’s curb appeal.

Do whatever you can to make your home look tidier and more spacious. This may make your home appear better maintained, and it may result in a higher appraisal value.

4. Provide Comparable Properties

If you or your agent are aware of recent sales that could be considered in the report, provide them to your appraiser. Search public records for homes with a final sale price close to what you asked for your home. You can present this list to the appraiser when they arrive at the property.

Home Appraisal Tips for Refinancers

When you’re refinancing, you’ll want to get the highest appraisal value possible. A low appraisal value could keep you from refinancing, but a high appraisal value means more home equity is available to you – which could result in more cash out or better loan terms.

Increase your chances of a high appraisal value by reviewing our refinance appraisal checklist and taking the steps described next.

1. Get An Outside Opinion

Your home is likely a place where you’ve made many memories, perhaps making it hard for you to notice any defects in the house. Have a friend or family member examine each room in your home and point out areas that can be improved. Sometimes, a fresh perspective on the property is just what the homeowner needs.

2. Declutter

A thorough decluttering will help each room look more put-together. The absence of clutter also shows them you’re not trying to cover up any potential flaws or defects in the property.

3. List Upgrades And Improvements

Upgrades and improvements can increase your property’s value, but the work you’ve done may not always be obvious. Did you get a new air conditioner? Replace the windows? Add new landscaping? Provide your appraiser with a list of upgrades you’ve made so they can consider these items in their report.

Bear in mind that these must be improvements that impact the value of your home. For example, if you didn’t previously have an air conditioner, the addition of central air adds value. However, if you replace a broken air conditioner, that’s considered maintenance and doesn’t add to the home’s value.