When Silicon Valley home buyers purchase real estate using a mortgage or loan, the lender will require that an appraisal be done. 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?
A real estate appraiser is a professional with a license specifically targeted for performing this work. He or she 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. 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, and plot out the basic floor plan of the home. Please note that no people can be in the images! If it’s a tiny condo, the visit may be brief – say 30 minutes. If it’s a luxury property, it may require more. Recently I met an appraiser at a 5300 SF house and he was there almost 90 minutes.
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 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.
Once all of the notes are taken, the appraiser will later draw out the floorplan of the home on a computer and will look at the comps in depth, adding and subtracting value for various elements (such as view, condition, remodeling etc.). You won’t get the appraisal value when the appraiser is still at the property. It will take a few days.
Even after the appraisal is turned in, it may not necessarily be over just yet. The appraisal may need to be reviewed – a process which could be very quick or take a couple of days. And then it needs to be signed off by whoever is ultimately responsible.
From the time you pay for the appraisal (usually online and with a credit card) to the time when the appraisal is completed and signed off, it may take a week or more. In some cases, if there’s a “rush” on it (for an extra charge) it may happen within a week. Recently I heard of one that happened in just a couple of business days.