Are you applying for a mortgage? Or are you planning to refinance your current mortgage and need a refresher on the appraisal process?

Then you have come to the right place! Let’s talk about why we uses appraisals, what an appraiser does, and ways to address undervalued appraisal values.

What is a Home Appraisal?

A home appraisal is a professional assessment of a property's market value, conducted by a licensed appraiser. Their assessment examines several factors, such as the home's condition, location, size, and features, and they compare those with recently sold properties in the area. This comparison helps them determine a fair market value, which is crucial for setting a sale price, securing a mortgage, or refinancing an existing loan.

The Home Appraiser’s Process

Appraisers use a systematic approach to determine the value of a home, combining objective data and professional judgment. Here’s a detailed breakdown of their process:

1. Initial Steps

• Purpose: Determine why the appraisal is needed (buying, selling, refinancing, etc.).
• Inspection: Spend a couple of hours at the home to check its condition, size, and features inside and out.

2. Data Collection

• Property Details: Measure square footage, note the condition, and check special features.
• Neighborhood Info: Assess the location and neighborhood qualities.
• Comparables: Look at recent sales of similar homes nearby.

3. Valuation Methods

• Sales Comparison Approach: Compare the home to similar recently sold homes and adjust for differences. This is the most common method used by appraisers.‍
• Cost Approach: Estimate how much it would cost to build a similar home today and adjust for depreciation. Use when inadequate comparables are available and for insurance purposes.

4. Report Preparation

• Compile Data: Gather findings from the inspection and analysis.
• Write Report: Create a report detailing the property, market analysis, and the final estimated value.

5. Final Steps

• Review: Check the report for accuracy.
• Deliver: Send the completed appraisal report to the client.

Handling Disagreements with an Appraiser's Valuation

If we disagree with a home appraiser’s valuation, we start by carefully reviewing the appraisal report to find any errors or inconsistencies. For example, I had a client whose appraisal did not include the square footage of an upstairs closet, which threw off the property’s reported value. A second appraisal was conducted, returning a valuation closer to the home’s sales price.

If there are no apparent errors in the report, we work with your real estate agent to gather evidence such as recent sales data of similar homes or details about upgrades to the property. We discuss our concerns with the appraiser, who may correct mistakes or clarify their valuation.

If they do not correct their report, we request a reconsideration of the appraisal and provide our new evidence. Remember, appraisals are subjective, so it’s important to present any valid information that can support our case. 

Another way to manage a low appraisal value as a buyer is to negotiate with the seller. If the seller is motivated, they may offer to cover the appraisal gap or accept a counteroffer with a lower sales price.

In the event that none of the previous steps work, we prepare our Appraisal Gap Strategy to choose our path forward. (Read a case study about the Appraisal Gap Strategy here!)

In Summary

A home appraisal is meant to help you (and your lender) avoid overpaying for property. While the process is thorough, it is also subjective. Work with a mortgage team like the Leo Anzoleaga Group to guide you through this process and more.

Get started by scheduling your free initial consultation here!