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Understanding Home Appraisals

It seems that more and more, we get questions about appraisals from homeowners and those about to purchase a home. There is some uncertainty as to how a value is determined and what to prepare for when you schedule an appraisal. First and foremost, all appraisals are requested through a third party company that manages appraisers. An appraiser is not hand selected for a request; instead, a system is used to enforce a non-biased selection. Once an appraiser has been selected, he will reach out to the contact on the appraisal request and set up an appointment. The appraisal management company will coordinate with the appraiser to schedule when the report is due back depending on the homeowner’s schedule. Once the report is completed, the appraisal management company will review the appraisal for errors and then release it to the lending company, which in turn sends a copy to the homeowner. This is true for most conventional and FHA mortgages as well. VA appraisals are handled by the regional VA office in Phoenix.

FAQ Appraisal Questions: applies to appraisals to be used in a mortgage finance transaction.

  1. How do I prepare for an appraisal?

Most banks want photos of all exterior walls, and some interior photos (living room, kitchen, all baths).  It is best to plan on photos being taken of ALL interior rooms.  Also, photos are taken of upgrades and of areas that require maintenance (peeling paint, cracked windows, worn carpet, holes in walls, missing doors, missing fixtures, etc.). It is a good idea to compile a list of all the improvements you have made to your property and give that to the appraiser. This list should include the month and year the improvements were made and what you spent (if possible).  The appraiser starts forming an opinion of your property the moment he arrives. The exterior should be clean and well kept. Basically, an appraisal is an opinion of value by an expert in that market who has trained for several years to provide this opinion.

  1. What things are taken into consideration when valuing a property?

The appraiser will measure the exterior of the property to determine Gross Livable Area, then measure the garages, porches, decks, patios, out buildings (barns, sheds, detached garages, shops, etc.). The site size is determined from the county GI mapping system. The whole property is “taken apart,” so to speak, on paper, with the Gross Livable Area and all other areas mentioned above separated out and adjusted for separately. The appraiser looks for homes of similar livable area, similar site size, similar bedroom and bathroom count, similar garage bays, and similar amenities (horse facilities, shop, shed etc.). Since Flagstaff is a mostly custom or semi-custom home market, model matches are not common and properties similar to yours are used. If your home is upgraded and in good condition, other properties with similar upgrades and conditions are sought out to use as comps. If your home is in need of repairs, those properties are also sought out to use as comps.

  1. How much does the location of my home matter?

Properties in the same area should be used if recent sales are available. If you back to the forest, ideally, other properties that back to the forest should be used. If that is not possible, then at least one that backs the forest should be included. The same applies to golf course lots, properties that back to the freeway, side power lines, water front properties, etc. If properties from different areas are used because of limited sales data in your area, then a location adjustment may be warranted. It all depends on the market and the reaction of the buyers and sellers. What used to be the standard in 2005-2006 is NOT necessarily the standard in today’s market.

4:     How does a foreclosure or short sale affect my value?

It depends on the level of foreclosure and short sale activity in the area. Areas that do NOT have a lot of distressed properties most likely will not be included unless there is no real market difference. The areas that have a lot of distressed sales (more than 75 percent in the manufactured home market in east rural) become the market. For most areas of Flagstaff, they are not the normal property and if they are included, they should be either adjusted to reflect this property type or explained why they were not adjusted. Sometimes it is not possible to derive a discount percentage for this type of property and therefore it cannot be adjusted. FBN


By Ben Perrine



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