A home purchase is the largest, single investment most people will ever make. Whether it's a primary residence, a refinancing of your existing mortgage, a second vacation home or an investment, the purchase of real property is a complex financial transaction that requires multiple, RELIABLE, parties to make it a reality. The Realtor is the most common face of the transaction. The mortgage company provides the financial capital necessary to fund the transaction. The title company ensures that all aspects of the transaction are completed and that a clear title passes from the seller to the buyer.
So who makes sure the value of the property is in line with the amount being paid? There are too many people exposed in the real estate process to let such a transaction proceed without ensuring that the value of the property is commensurate with the amount being paid. This is where the appraisal comes in. An appraisal is an unbiased opinion of what a buyer might expect to pay - or a seller receive - for real estate, where both buyer and seller are informed parties. To be an informed party, most people turn to a licensed, certified, professional appraiser to provide them with the most accurate opinion of the true "market value" of their property.
The Appraisal Process (in brief)
It all starts with the inspection. An appraiser's duty is to inspect the "subject" property being appraised, to ascertain the true status of that property. In most cases, the inspection often includes an on-site sketch of the home and actually measuring the home, ensuring the proper square footage and conveying the layout of the property to the lender. Usually, there are multiple pictures taken inside the home and also a picture of the front and back of the home.
Once the subject site and home has been inspected, an appraiser may use different approaches in determining the value of real property, with the most widely accepted approach being the Sales Comparison Approach. Appraisers get to know the "neighborhoods" in which they work. They understand the value of certain features to the residents of that area. They know the differences between these neighborhoods. The appraiser uses this information to determine which recent sales have occurred in the subject's neighborhood and finds properties which are ''comparable'' to the subject being appraised.
The selected comparables should be the most functionally and physically similar, proximate and recent sales available to the appraiser. The sales prices of these properties, and their features, are used as a basis to begin the sales comparison approach. Also considered by the appraiser in the final value opinion process are listings of homes for sale in the subject's neighborhood. All of the comparables sale prices used in the appraisal report are then adjusted (if necessary) both positively and/or negatively to the subject's features. Any adjustments to the comparables should be market driven, proven adjustments. All other appraisal factors are then weighed and a final opinion of market value is then determined and reported to the "client". The appraiser is bound by governing law to deliver the appraisal report only to the client, which is the entity that engaged the appraiser to do the job. The homeowner should contact their lender (if applicable) if they wish to have a copy of the appraisal.