You have found a good lender. You’ve gone through all the paperwork. Your credit has met with the lenders approval. You have chosen a home to purchase. Now you are waiting on the appraisal.
This can be a nerve racking experience but try to stay objective. As in any other profession there are good and bad appraisers. Here are some of the qualities to look for in a “good” appraisal.
An appraiser collects the information on the house you are purchasing or refinancing. The most important data is the square footage of the home, the condition and age of the home, the amenities of the home(swimming pool, granite counters etc…) the size and utility of the lot(is it waterfront?).
After collecting the data on the home the appraiser then collects information on the neighborhood and recent sales. The appraiser will then typically choose three recent closed sales and one or two pending or active listings and compare the major characteristics of the subject home to the comparables. During the comparison process the appraiser will make adjustments to the value of the home based on the differences. If the subject home is larger or smaller than the comparable an adjustment will be made. If there is a significant difference in lot size or age, an adjustment would be warranted. The same goes for condition and amenities.
A good appraisal has sales that are recent, ideally within 90 days and not older than 6 months. If the appraiser is using sales that are older it might be because the sales in the neighborhood are slow or it could indicate the subject is not as similar to the sales in the area as preferred. When you see older sales on the appraisal look for statements that explain the reasons for using older sales.
An appraisal should “bracket” the significant differences between the home and the comparables. A comparable that is larger than the subject and one that is smaller than the subject would be an example of “bracketing” the square footage of the home. When bracketing occurs this allows an appraiser to extract data from the market and this is an important element of a good appraisal.
The comparable sales should be close by. This can mean different things in different markets. In a suburban or urban setting comparable sales should come from the subject development or from nearby (within a 1 mile radius) competing developments. For a rural property it is not uncommon to have to search wide areas and use older comparables in order to bracket the subject’s major characteristics.
When you receive an appraisal it is easy to get emotional. We are all attached to our posessions, and none more than our homes. A good appraiser is just doing a statistical analysis of recent sales. However they do make mistakes just like everyone else. So, double check the facts. Make sure the data they used is accurate. If you know of recent sales that might be helpful, most appraisers are more than happy to look at them. They might not have used them because the differences between the subject and the comparable would require adjustments that go beyond lender guidelines.
Remember, an appraisal is just an opinion of value based on statistics and recent sales. Values reported in appraisal can vary dramatically when new sales data becomes available.