Understanding Real Estate Appraisals

If you’re entering a mortgage situation, it’s likely that appraisals can come up. Not only are appraisers involved when you purchase a home, but depending on your home loan, they can also be involved when refinancing. (See HARP and the FHA streamline for programs that don’t involve appraisals for refinancing.)

If you’re new to appraisals, here’s a quick guide:

Real Estate Appraisals

A real estate appraisal is essentially the unbiased writeup of the perceived value of a property. Because every property is different, each has a unique value assigned to it. An appraiser involved in your real estate transaction will determine market value. This may be different from the actual selling price.


An appraisal of your home is its market value.

A certified appraiser will be the one to determine the fair market value of your home. These are licensed professionals trained in determining property value. Appraisers have a certain set of rules and regulations, forms and guidelines by which they must follow. To begin determining your home’s value, the appraiser will consider the following:

  • The Market. Your neighborhood, the city and the region will all factor into the home’s value.
  • Comps. Your real estate agent may have referenced these, too. Comps are homes within a mile of your property that have sold and closed within 6 months and are similar in size to your home. Typically the appraiser will look for 3 homes to compare. Other sales and vacancies can also factor into comparable property data, too.
  • The Property Itself. The appraiser will evaluate the square footage, lot size, bedrooms, bathrooms, year built and any other property features that increase or decrease the market value (such as finished basements, pool, porches and patios.)
  • Field Inspections. The appraisers will visit your home and evaluate the front and rear, taking several photos. They may also inspect the interior. They will be looking at the neighborhood of the home, curb appeal, and the condition of the home and yard.

Once an appraiser has visited your property and pulled comps, they will compile all of their research and begin their data analysis. The appraiser will begin a process of sorting through customizations and reconciliations to determine the value of your property. They take into account cost, sales comparisons and income capitalization to determine value.

The value will then be reported to the lender, who is required to order the appraisal if it is to be used in the real estate transaction. If you’re a seller, this can also allow you to know if the property was priced right. If you’re a buyer, you can use the information when negotiating your offer.

These are just the basics on understanding the complex process of appraising a home for real estate. If you’d like more information, check out this PDF on Understanding Appraisals.

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