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Real Estate Appraisal

real estate appraisal

When you are buying or selling a home, one of the most important aspects of the transaction is getting an accurate appraisal valuation. An appraisal is a document that estimates the market value of a property.

It is important to know what goes into an appraisal and what to look for during an appraisal inspection. In this blog post, we will discuss everything you need to know about real estate appraisals!

What is a real estate appraisal?

According to the Federal Deposit Insurance Corporation (FDIC). A home appraisal means a written statement independently and impartially prepared by a qualified appraiser setting forth an opinion as to the value of an adequately described property as of a specific date(s), supported by the presentation and analysis of relevant market information.

A home appraisal is needed to determine the estimated market value of a house, condominium, commercial property, vacant land, etc.

What is an appraisal report?

An appraisal report is a document that includes an appraiser’s estimated valuation of a property. The report will also include information about comparable sales in the area, and other data that was used to come up with the estimate.

Appraisal reports are important because they provide all parties involved in a real estate transaction with an unbiased estimate of value.

The appraisal process and how values are determined

The appraisal is conducted by a licensed appraiser and usually takes place over the course of two visits.

The first visit is called the “desk review” and during this phase, the appraiser will look at comparable sales in the area, public records, and other data sources to come up with an estimate of value.

The second visit is called the “field review” and during this phase, the appraiser will physically visit your home and take measurements, photos, and notes. After the field review is complete, the appraiser will compile all of their data and write up a final report with their estimate of the value of the property.

How are valuations determined

An appraiser will usually use one of three methods to determine value: the sales comparison approach, the cost approach, or the income approach.

The sales comparison approach: When an appraiser looks at comparable sales in the area and uses those prices to determine its value.

The cost approach: An appraiser estimates the value by looking at the cost to replace it.

The income approach: Is when an appraiser estimates the value of a property by looking at the income that it could generate if it were rented out.

After the appraiser has determined the market value of the property using one or more of these methods, they will write up a final report with their estimate.

This report is important because it provides all parties involved in a real estate transaction with an unbiased estimate of what it’s worth.

What is market value?

The definition of market value that applies to HUD/ FHA. This definition is from the uniform standards of professional appraisal practices. (HUD is the US Department of Housing and Urban Development. FHA is the federal housing administration). The definition of value must be used for all appraisals performed for an FHA-insured mortgage.

“the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and Knowledgeably, and assuming the price is not affected by undue stimulus.”

An appraisal report is to assist someone in making a buying or selling decision. A person may be considering purchasing, selling, insuring, or lending money for a house, condo, commercial property, or vacant lot.

Additionally, you can also use appraisals for tax purposes to estimate how much money a property owner needs to pay in taxes.

Types of appraisal services

There are two types of appraisal services: full appraisals and limited appraisals.

Full appraisals are more comprehensive and will provide a more accurate estimate of the value of a property.

Limited appraisals are less comprehensive but can be completed in a shorter time frame.

Reasons to have an appraisal

Appraisals are used for many reasons, from refinancing your home to accessing your property taxes. Here is a list of things appraisals are used for.

• Expert witness testimony

• Market rent trends

• Tax assessment reviews and advice

• Analysis of investment properties

• Disputing resolutions including estate settlements, divorces, property partition suits foreclosures, Zoning issues, etc.

• Buying and selling a property

• Bankruptcies

• Bail Bonds

• Eliminating private mortgage insurance (PMI)

• Refinancing your home

• Getting a home equity line of credit

Common reasons to order a property Appraisal

There are several reasons why getting a professional house appraisal can be a great benefit to you.

One of the most common reasons why someone chooses to get a real estate appraisal. Is to acquire a loan from a bank or lending institution.

Lenders need appraisals to assist them in figuring out how much money to lend someone for a mortgage loan application.

There are many steps to getting a loan from a lender. However, lenders always require an appraisal because the property will be the collateral for the mortgaged loan.

let us discuss in-depth some of the reasons mentioned above on why someone would want to get a home appraisal.

Bail Bond Appraisals

Having a real estate appraisal for bail bonds is something commonly used by some homeowners. Homeowners put their homes up as collateral to bail family members or friends out of jail.

In most cases, you can put down a percentage of the total bail, which is typically around 10%.

The money given to you by the bail bonds is a loan and must be reimbursed. All loans have some form of risk associated with it. Therefore, a bail bond company uses your home as collateral to make sure you repay the loan. 

A home appraisal for bail bonds is a simple process. The appraiser will go to your home to get an estimated valuation to secure the loan.

Pre-sale Appraisal

An appraisal is recommended before putting your home on the market.

As a homeowner, before you sell your property, you want to know what the value is.

The point of this is to get the highest offer possible and to make sure you do not sell your home for less than what it is worth.

Banks or lenders will not offer a loan to a potential buyer for a property that’s above market value.

Feasibility Study Appraisals

Far less common than an appraisal for a pre-sale. A feasibility study can assist a homeowner before they start remodeling or renovating their home. The appraiser will do a comprehensive analysis of the property and the cost of renovations.

The appraiser will prepare an estimate of what the property value would be after the renovations. This is invaluable information for the homeowner. Because it allows them to understand what the cost and benefit of the renovation would be.

Removing Private Mortgage Insurance (PMI)

To avoid paying mortgage insurance, you need to put down at least 20% value of the home when purchasing.

If this is not possible, the lender will require that you pay mortgage insurance for a set period.

Fortunately, you can remove PMI if you have at least 20% in equity in your home. You may contact your lender when you have paid down the mortgage balance to 80% of your home’s original appraised value.

When your balance drops below 78%, your mortgage service provider is required to remove PMI.

Although you can cancel private mortgage insurance with a real estate appraisal from a professional. You aren’t able to cancel the FHA mortgage insurance.

FHA mortgage insurance varies from 0.45% to 1.05% of the loan amount. Unfortunately, it usually remains for the life of the loan.

FHA mortgage insurance, can not be canceled if you make a down payment of less than 10%. However, you can remove the insurance by refinancing the mortgage into a non-FHA loan.

When you put 10% or more down on an FHA loan, you will pay mortgage insurance premiums for 11 years instead of the life of the loan.

Appraisals for Condemnation Proceedings

A condemnation proceeding is also known as eminent domain. Occurs when an appraiser estimates just compensation in situations where the federal or state governments have taken ownership of a person’s private property for public use.

These circumstances occur when new roads are built, public parks are erected, expanding government buildings, etc.

The law requires that an individual whose property has been taken by the government must be paid a fair price.

Eminent domain is the power a state or federal government has to take private property for public use.

Condemnation is the formal act by that authority or governing body with eminent domain power to transfer title from a private property owner to the condemning party.

Real Estate Appraisals and Property Tax Disputes

Homeowners can use an appraisal to dispute property taxes according to the law. However, many homeowners do not realize that they can do so.

Because of the lack of knowledge, homeowners are overpaying for their property taxes.

If you would like to dispute your tax assessment done by your county. You need to hire a professional appraiser.

After getting your report, you can take it to your local county tax assessor’s office to begin the process.

Keep in mind that having this report will not automatically overturn your tax assessment.

The report provides your local County office with information and a second opinion regarding what your home value is. 

After that, it is up to their discretion whether or not they change the tax value on your home.

Appraisals and Home Equity Line of Credit

A home equity loan is a second loan on top of your already existing mortgage. The amount you can borrow against your home depends largely on the amount of equity you have.

Unfortunately, if your home has decreased in value, you may not be eligible to get a home equity loan. When applying for a home equity loan an appraisal is required to determine the value of your home.

The lender will then use the report to determine how much equity you have in your home and how much money they are willing to lend.

Foreclosure Real Estate Appraisals

It is highly recommended that before you purchase a foreclosed property, you obtain a professional appraisal.

The report will provide you with the estimated property value. This information is valuable for both investors and potential home buyers. Who are interested in purchasing a distressed property.

Home Appraisals and Bankruptcies

In most states, residents are allowed to use homestead exemptions to protect some of the equity in their homes. In states such as Florida, the entire homestead is protected regardless of the value of the home.

To determine whether you can protect your home, you need to get an accurate home appraisal.

After that, you will deduct the mortgage balance to determine the equity. If you find that the equity is less than the amount of the homestead protection available, your house will be protected in bankruptcy.

The key here is that you need to have an appraisal done by a certified professional.

Real Estate Appraisals for Refinancing Your Home

If you are thinking about refinancing your home, you need to understand the appraisal’s essential role in the process and how you can prepare your home. An appraisal can be the key to achieving a successful refinance.

If your home valuation is too low and you are underwater on your mortgage. You cannot refinance your home.

In a refinance transaction, the appraisal report protects the bank by ensuring that it does not let you borrow more money than the property is worth.

If the property happens to go into foreclosure later on in the life of the loan, the lender wants to make sure they can sell the property and recoup some of their losses.

Here are a few things an appraiser would be looking for

Appraisers are looking for any factors that could affect the value of the property. This includes things like the condition of the property, the location, and any recent renovations or additions that have been made.

Appraisers will also take measurements and photos during their inspection.

Here is a list of items an appraiser will look for:

• Comparable properties in the area

• The current condition of your home

• Condition of the major systems including, roof, HVAC, furnace, etc.

• Recent improvements

• Amenities in and around your neighborhood

• Location of your home

•Tips for having a successful appraisal refinance:

• Paint wherever needed

• Clean and declutter your home

• Fix any issues you have with the home

• Address the landscaping for a good impression

Types of Appraisers

Licensed Residential Appraiser: May appraise non-complex 1-4 residential units having a transaction value less than $1,000,000 and complex 1-4 residential units having a transaction value less than $250,000. This classification does not include the appraisal of subdivisions.

Certified Residential Appraiser: The Certified Residential Appraiser may appraise 1-4 residential units without regard to transaction value or complexity. This classification does not include the appraisal of subdivisions.

Certified General Appraiser: A certified general appraiser can appraise any real property.

How to Become an Appraiser in Texas?

A licensed appraiser is a person who has met the education requirements, and experience and has passed the real estate exam. An entry-level appraiser can appraise non-complex residential 1-4 unit properties with a transactional value of less than $1,000,000. They also have the authority to complete complex federally related transactions.

  • You must be 18 years of age or older
  • Completed at least 1000 hours of acceptable verifiable appraisal experience over a minimum of 6 months
  • Must meet the qualifications of a trustworthy and honest person

After you have met the above requirements, you must submit your application through Texas Appraiser Licensing & Certification Board (TALCB)

After you have applied, you need to start working on getting your 150 hours of education credits. There are many schools to choose from in-person and online. However, the school must be accredited by TALCB.

The next step in the process is taking and passing the exam. You need to take the exam through a testing service company. If you fail the exam more than three times, additional education will be required. You will need to pay a national registry fee that varies from $250-$460. The price depends on the level of the appraiser licenses you are applying to get.

The final step is to get the required 1000 hours of experience. It can get difficult depending on the area you live in. Finding a trainer who will let you tag along and learn how to be an appraiser is tough. You could try asking friends and family to see if they know any appraiser willing to take you on. Another strategy is applying for entry-level jobs at appraisal companies or your local county appraisal office.

Appraisal Inspection Checklist

The appraiser researches recently sold properties in your area with similar features compared to your home. This process is called comparables. Comparables are sales records of recently sold homes in and around your neighborhood. 

It can also extend outside of your neighborhood a few miles depending on the information the appraiser needs. For example, if your property is in a rural area, the appraiser may need to look for comps further from your home to attain the value.  

Typically appraisers and real estate agents use at least three properties from the multiple listing service (MLS) for comparables. For the best results, only properties that have sold in the last six months are used.  

If no properties have sold within the past six months. Appraisers will increase it month by month until they get the information they need.

When working with a professional appraiser, expect them only to use forms approved by the FHA, Fannie Mac, VA, etc. 

What you’ll see on a residential appraisal report

Appraisals are detailed reports that contain the evaluation of the property in question along with the sale information. A typical residential report will include the following:

  • The address of the property
  • The date of the appraisal
  • The appraiser’s name and contact information
  • An estimate of the market value of the property
  • Site/View
  • Quality of Construction
  • Design and Appeal
  • Age of Home
  • Condition
  • Room Count Above Grade
  • Gross Living Area
  • Functional Utility
  • Basement and Finished Rooms Below Grade
  • Gross Living Area
  • Functional Utility
  • Basement and Finished Rooms below Grade
  • Heating/Cooling
  • Fireplace
  • Garage and Carports
  • Porches, Patio, Pools, Etc
  • Special Energy Efficient Items
  • Other

Site/View

The site view is the topography size of the site and the type of view from the home. Is the surrounding area very hilly, relatively flat, or does the site have usable space? As a matter of fact, a very hilly lot will not be of much use to most homeowners compared to a flat lot. 

There is a saying in real estate. It goes a little something like this: location, location, location. The view from the home does matter a lot. 

Also, if you have a lakefront property overlooking a vast amount of water, chances are your property is going to be worth more than a home overlooking your neighbor’s backyard. After all, we would rather watch a sunset overlooking a lake than your neighbor’s burning bbq. 

Design and Appeal

The design and appeal refer to the style of the home. Is it ranch-style, modern, contemporary, or Colonial? Is the layout in line with the neighborhood, and will it appeal to most buyers? This also covers the finishing details of the home (such as countertops, floors, and appliances)

Quality of Construction

What is the quality and construction of the home? Is the house made of brick or a wood frame? Is it a pier and beam or a concrete slab? Most homeowners will typically pay more to buy a brick home on a concrete slab. 

In most cases, a brick home will last much longer than its alternative. How is the construction of the home good or bad? An important question for an inspector to ask. Because some homes are built by homeowners and handymen.  

Age of Home

This one is very simple. An appraiser needs to find out what the age of the home is. Was it built in 1985 or 1923? They also need to know if the age, is in line with other properties in the neighborhood. 

If the age is significantly different, the value of the home may be adjusted. You will find that most homeowners are willing to pay more for a newer home. The reason is the home is fairly new so all the major items such as the roof, HVAC system, electrical, plumbing, and foundation will last longer. 

Condition

The condition of the home refers to the overall interior and exterior condition. Is the property in good standing where you can put it on the market tomorrow for top dollar. Or is the property distressed and in need of a lot of repairs. Most buyers will pay more for homes that are in move-in-ready condition. Distressed homes are typically sold below market value to investors and homeowners interested in a fixer-upper. 

Room Count Above Grade

Room count above grade refers to the number of rooms in the house. The rooms also need to be in a livable condition in areas that are above grade. The total number of rooms does not include bathrooms or any other rooms in the basement or attic. The number of bathrooms is in a separate section on the form. 

Gross Living Area (GLA)

The gross living area is the number of livable square feet of space inside the home above grade. During an appraisal, all rooms will be measured and accounted for. Rooms that are in an attic or basement are not livable spaces above grade. You will find that the larger homes in a neighborhood tend to fetch a higher price.

Basement and Finished Rooms Below Grade

During a real estate appraisal, the appraiser needs to identify whether or not there is a basement or finished lower-level rooms in the house. This area of the home is below grade. In Texas, homes have attics and no basements.  

Functional Utility

How does the home flow? Does the home have great functionality where bathrooms are in the areas where they are needed? Is the laundry room outside where it is not easily accessible? In addition, an appraiser needs to check the functionality of the home compared to other subject properties within the comparables. 

Heating and Cooling

It gets hot in Texas, so you need to know if the HVAC system is working efficiently. An appraiser needs to check the type and age of the system. In general, most HVAC systems will last around 15 to 25 years depending on the type of system. Does the home have a central system or window units? 

Garage and Carports

What is the type and size of the garage door? Is the garage being used for its intended purpose, or is it converted into a room? A carport is a semi-covered structure typically consisting of a fabric or steel roof supported by steel posts.

Special Energy Efficient Items

Does the home have energy-efficient windows and insulation? Maybe there is a newly installed solar panel. Again, these are not important factors compared to the life of a roof. However, they do need some consideration.

Fireplace

The number of fireplaces in the home and are if they are in working condition.

Other

Are they any other items or improvements that may affect the value of the home? Is there a modern kitchen, or is it outdated? What is the broader economic health of the area? Are jobs coming or leaving the local area?

How long does a home appraisal last?

A home appraisal is valid for six months from the date of the appraisal. After six months, the appraiser may choose to update the report if there have been any significant changes to the property or the market.

How much does a home appraisal cost?

Most single-family home appraisals cost between $300 and $450 while multi-family homes typically cost over $600. The amount a seller will pay for an appraisal depends on several factors such as the size of the residence and its location.

Home appraisal tips for buyers:

When you are buying a home, it is important to remember that the appraised value is not necessarily the same as the purchase price.

The appraised value is an unbiased estimate of the property’s worth, while the purchase price is what the buyer and seller have agreed upon.

It is not uncommon for there to be a discrepancy between the two values.

If you are concerned about the appraised valuation of the property you are interested in, there are a few things you can do to help ensure that you get an accurate appraisal.

First, make sure to choose a reputable and experienced appraiser. Second, provide the appraiser with as much information as possible.

Finally, be sure to attend the appraisal inspection so that you can answer any questions the appraiser may have.

Home appraisal tips for sellers:

If you are selling your home, it is important to remember that the appraised value is not necessarily the same as the sale price.

The appraised value is an unbiased estimate of the market value of a property, while the sale price is what the buyer and seller have agreed upon.

The first thing you can do is to ensure that your home’s appraised value is accurate and not inflated by current market conditions, like a slowing economy for example.

Also, it may seem simple but it is important! Make sure the person doing the appraisal has the integrity as well as experience- these qualities are difficult finds sometimes even among professionals who work with numbers every day.

As the seller, you should also be prepared with recent comparables in the area as well as other pertinent information about your home that could help explain any discrepancies between your home’s appraised value and the eventual sale price.

What is the most important thing to remember about home appraisals?

The most important thing to remember about home appraisals is that they are an estimate of the value of a property, not necessarily the same as the purchase price. It is not uncommon for there to be a discrepancy between the two values.

If you are concerned about the appraised value, you can always get a second opinion.

key takeaways


A home appraisal is an estimate of the value of a property, while the purchase price is what the buyer and seller have agreed upon. It’s an important tool in the home buying or selling process, as it provides an unbiased estimate of the market value.

Most appraisals cost between $300 and $450, but the amount can vary depending on the size of the residence and its location.

Home appraisals are valid for six months from the date of the appraisal. After six months, the appraiser may choose to update the report if there have been any significant changes to it or the market.

Thank you for reading! I hope this article was helpful. If you have any questions or comments, please feel free to leave them below.

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