Everyone knows what a real estate appraiser does, right? They go into a home to inspect it to determine its value. That’s the perception, but the truth is that only small fraction of the appraisal process takes place during a walk-through. There’s also a misconception that appraisals are conducted for the borrower, but they’re actually performed for the lender. This is to ensure that the loan amount is backed by the collateral, so the lender is protected financially.
The Appraiser’s Method
There are many standards to follow when accepting, developing and reporting an appraisal. Typically, an appraiser will have a caseload of appraisal assignments daily that involve multiple steps from start to finish. Here is a breakdown of what an appraiser does on an average day-to-day.
Once an appraiser accepts an order from a lender, they will reach out directly to the borrower to schedule an inspection of the home. Once the appraiser and borrower settle on a date for the inspection, the appraiser begin to research the property with a preliminary data pull, which includes basic facts on the property. They will also find comparable properties to the one being appraised by looking at everything from home style, location and street type (private or public) to the local watershed.
The timeframe between the scheduling of the inspection and when the actual inspection date occurs can seem like downtime, but for the appraiser it’s not. This time is spent researching local market areas to determine what factors could influence the value of the property. This includes neighborhood sales, neighboring structure quality, proximity to water and so on. While conducting this research, the appraiser will obtain photographs of each comparable sale in the area. A standard appraisal will use three different approaches to determine the value of a property: sales comparison, cost and income approach (including rental information).
The appraiser will look at everything when they do a walk-through. They look at square footage, integrity of the building, age, possible renovations needed, room counts and sizes. They fill out a detailed appraisal report that will be referenced for the remainder of the appraisal. The appraiser will also use Multi-listing Services (MLS), and local courthouse records to ensure the accuracy of the information they’ve already gathered. They dig through the history of the neighborhood, and the structure itself to ensure that they are getting the full picture. The process can take some time, but in the end the lender will have an accurate valuation of the property.
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