What happens at an appraisal?

What happens at an appraisal - image with camera, grid paper, measuring tape, housesWhen Silicon Valley home buyers purchase real estate using a mortgage or loan, the lender will require that an appraisal be done. (This is true even if you do not have an appraisal contingency.)  The main reason for the appraisal is to protect the bank from the risk of its making a bad investment.  The question being posed is a simple one: is the house, condo, land etc. worth the purchase price?

An appraisal isn’t just a visit to the property, but more of a process. But first, who is the person doing the appraisal?

Is an appraiser another real estate sales person?

A real estate appraiser is a professional with a license specifically targeted for performing this work. It’s not the same as a real estate salesperson’s license. In California, they are regulated by the Bureau of Real Estate Appraisers.

The appraiser must evaluate the target property and arrive at worth based on comparable sales.  (There are other ways of arriving at value.  In the case of income property, for example, it might be important to look at the rent, expenses, cash flow and ratios of several factors to calculate value. Another angle may be replacement cost or cost for rebuilding.)  In most cases, though, comparable sales will be analyzed and this approach will be given the most weight.  We often refer to these as “comps”.

In many cases, the appraiser will do some research before visiting the property (and we real estate agents may email comps or other information ahead of the visit).

Once at the site, he or she will

  • measure to calculate the square footage of the house and garage (living space plus other space)
  • will take photos of the inside and outside of the house or condo plus the street view
  • plot out the basic floor plan of the home
  • verify that there are smoke detectors, carbon monoxide detectors, and water heater strapping as required for health & safety

Please note that no people can be in the images!

Sometimes the appraiser may ask the real estate agent who is present some questions about either the property or the sale.

Often the buyer’s agent will be the access person for the appraiser, but just as frequently it’s the listing agent.  Why should the listing agent take the time when it’s something for the buyer?

As I see it, a low appraisal will hurt my seller clients because it could cause the buyers to bail out or try to renegotiate the price.  For that reason, when I represent the sellers, I like to meet the appraiser and bring comps (or email them ahead of time) to help defend the price.  As the buyer’s agent, I also see risk that my clients may have to come up with more cash if the appraisal falls short, or have some other unhappy remedy such as cancel the same – that’s expensive, as in most cases not only does the appraisal cost a few hundred dollars, but inspections aren’t free either!  For me, I like to go no matter which side of the transaction I’m working.

How long does the appraisal appointment take? When is the report done?

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