A real estate appraiser is an individual that is licensed and experienced in the valuation of property. They give an opinion of value for that property, and the opinion is used in the mortgage process to verify that the loan amount is appropriate for the property.An appraisal is one of the first steps of the mortgage process. It is vital to both you the borrower and the lender because the appraisal will determine the actual value of your home based on similar home sales in your neighborhood. Your mortgage professional will schedule the appraisal so be sure to be home so the appraiser can have access to the interior of your home.
A real estate appraiser comes to its final opinion of value through a combination of three different approaches. The first and most widely used approach is the comparable sales approach. This is where the appraiser uses comparable properties as the main determining factor to come up with the properties final value. The second approach is the cost approach. The cost approach determines value by using the replacement value of the property as the basis for the final value. Finally, the third and last approach is the income approach. With this approach, the appraiser treats the property as an investment and calculates potential income and revenue versus expenses to come to a final value.
The purpose of an appraisal is not to determine "what your home worth". Their job is to determine what the "fair market value" of your home is. The fair market value is not just what you think the property should sell for, but what a buyer in the current market would be willing to pay for the property.
In the comparable sales approach, Appraisers use similar homes which have closed recently to determine the value of your home. The key word here is "closed" as homes simply listed for sale or a neighbor's home that has not sold recently cannot be used to determine value.
Although both an FHA appraisal and a conventional appraisal will look substantially the same, appraisers charge more for the FHA appraisal because they are required to examine the property in much more detail and meet stricter guidelines in preparing the appraisal report.
The income approach is primarily used when appraising commercial properties. Due to the nature of commercial property it can be difficult to find recent sales of similar properties or comparables. Plus the value of a commercial property lies in how much income the property can generate.
The cost approach is given very little weight. An extreme example can show why this approach is not a reliable indicator of value. Imagine a home that costs a million dollars to build is built on top of a toxic waste dump. How much would it be worth? Not much. Certainly not a million dollars.
In residential real estate lending, the comparable or fair market value approach to arriving at the appraised value is the value used in determining how much you can borrow when purchasing or refinancing your home.
Most appraisers will charge anywhere between $250 and $500+ to appraise your home depending on size and location of your lot.
Your mortgage broker can order the appraisal for you and can make arrangements on your behalf, but the fee is typically collected COD.
