R E S I D E N T I A L A P P R A I SA L M E T H O D S There are two common appraisal methods used for residential properties: 1.
Sales Comparison Approach: The appraiser estimates a subject property’s market value by comparing it to similar properties that have sold in the area. The properties used are called comparables, or comps. No two properties are exactly alike, so the appraiser must compare the comps to the subject property, making paperwork adjustments to the comps in order to make their features more in-line with the subject property. The result is a figure that shows what each comp would have sold for if it had the same components as the subject.
2. Cost Approach: The cost approach is most useful for new properties, where the costs to build are known. The appraiser estimates how much it would cost to replace the structure if it were destroyed.
W H AT YO U R AG E N T CA N D O F O R YO U TO H E L P T H E A P P R A I SA L P R O C E S S The best thing a homeowner or broker can do to help the appraisal process is to prepare a one-page sheet for the appraiser that outlines the changes and repairs that the home has undergone since it was bought. (NY Times)
W H AT T H E A P P R A I SA L M E A N S TO YO U As a seller, a low appraisal, if accurate, means you will have to lower your home’s price to get it sold. Lenders will not approve loans for more than a home is worth, and holding out for an all-cash buyer who doesn’t require an appraisal as a condition of completing the transaction is unlikely to net you a higher sales price. No one wants to overpay for a home. Unfortunately, recent distressed sales in the surrounding area can lower your home’s appraisal value. If you feel that your home’s value has been dragged down by the sales prices of nearby foreclosures and short sales, you may be able to convince the appraiser that your home is worth more if it is in significantly better condition than those properties. Sellers should also know that federal guidelines (intended to eliminate the inflated appraisal values that contributed to the housing crisis) sometimes cause appraisals to come in below fair market value and can make low appraisals difficult to challenge. When everything goes smoothly, the home appraisal is just another box to tick on a loan-closing checklist. When the appraisal value is lower than expected, the transaction can be delayed or even canceled. Regardless of which situation you encounter in your home buying, selling or refinancing experience, a basic understanding of how the appraisal process functions can only work in your favor. (Investopedia)
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