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  • Writer's pictureAlbert Chanese

The Easy Way To Understanding The Residential Appraisal System

Whether you are buying, selling, or refinancing your home, federal regulations dictate that your lending institution must obtain a fair and unbiased appraisal to assess the home’s value as collateral for any loan they give you.

If you’ve never had an appraisal done before, you may not understand the process. Here is a quick overview of what to expect.

Interior And Exterior Inspection

First, the appraiser will conduct an exterior inspection of the property. If the valuation requires it, the appraiser will contact either the homeowner or sales agent to also inspect the interior of the property.

Research Gathering

The appraiser’s next job is to gather all pertinent data regarding the property and market area, including: municipal and county records, MLS (Multiple Listing Service) records, and other data.

Sales Comparison Or Cost Approach Method

Valuators will most likely use either one of two methods to determine a property’s value. The Sales Comparison approach, or the Cost Approach. Because having local market knowledge is critical to correctly assessing value, local appraisers with geographic competency and experience valuating homes in the area have a distinct advantage.

With the Sales Comparison Approach, the valuator uses “comps” to determine the property’s value. Comps are comparable residences to the subject property in the area that have recently sold or listed. The valuator compares these homes with the subject property, paying particular attention to age, amenities, quality, utilities, number of bedrooms, land, and other characteristics and features.

In the Cost Approach, the appraiser determines the home’s value by coming up with the total cost to replace the home (minus depreciation), adding in the land’s value. The Cost Approach makes most sense when appraising a newer construction where there has not been much (or any) depreciation.

Putting It All Together

After compiling all of the data, records, comps and more, the valuator will analyze all information and come to a conclusion regarding the value of the property. Their findings will be presented in a report to the lender.

Valuation Professionals

Appraisers that meet the Appraisal Institute’s highest levels of professional ethics, education and experience receive their MAI designation. Be sure the valuation professional that conducts your appraisal has the MAI designation.

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