Home Appraisal FAQ
Joseph F. Schram, Jr., in his book "Real Estate Appraisal" published in 2006, characterizes a home loan appraisal in this way: "An appraisal is an opinion because it relies significantly on the appraiser's judgment and experience. There is no mechanical process or mathematical formula that can determine the exact value of a property..." The home appraiser uses comparable sales, his experience and background knowledge of the local market and the value of the home based on the physical amenities of the property.
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Who Does the Appraisal?
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The appraisal is done by a qualified individual hired by the lender. While some states had lax appraiser qualifications prior to the housing crisis of 2008, most now require appraisers to be trained and licensed by the individual state. Many appraisers also belong to state or national professional organizations with strict codes of conduct and ethics. The Appraisal Foundation, established in 1987, promotes a Uniform Standards of Professional Appraisal Practice, codes for "establishing educational experience and examination qualification criteria for the licensing, certification and recertification of real property appraisers."
Who Pays for the Appraisal?
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The appraisal is normally paid by the party taking out the loan, unless other arrangements have been specified in the sales contract. It is usually a set fee that is disclosed as part of the loan agreement. The appraiser may require a separate payment before or immediately after the appraisal is done.
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What Happens if the Appraisal Does not Meet the Sales Price?
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A property may sell at a certain price, but the appraiser may not find that the home is worth the sales figure. In this case, the buyer or seller may request a second appraisal of the property. This may not satisfy the bank that the home is worth the money, so the seller may need to reduce the price of the home. Buyers convinced that the home is worth the sales price may decide to put more money down so that the bank loan will make match the home appraisal.
Does a VA or FHA Loan Require a Special Appraisal?
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The U.S. government offers home loans under the Veterans Administration (commonly called VA Loans) and also under the Federal Housing Administration (FHA Loans). Appraisers hired for VA and FHA loans must be hired from a pre-approved list of locally qualified appraisers. The most stringent home appraisals are those done under the auspices of the FHA and VA, due to the required forms and list of appraisal requirements. FHA appraisers must determine the dollar amount cost to repair any defects found at the property. Certain defects, such as a flat roof design or a leaking roof, active termite infestation, use of well water, and appraiser determination that a septic system is faulty, require additional inspection by the federally approved appraiser. These conditions must be repaired before the property may close escrow, and they must be noted on the appraiser's report. Other cosmetic repairs may be waived by the home buyer for later improvement.
How Long Does it Take for the Physical Appraisal?
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A qualified appraisal typically requires an hour or two at the property for most loans. For home loan applications requiring only a fraction of the property's worth, the appraiser may simply drive by the property to photograph the home and grounds. This drive-by must support the research and paper information about the property. If the research states that size of the home is 3,000 square feet and the property appears to be significantly smaller, the appraiser will set up an in-home visit, even for small home loans. Most home appraisers will make an appointment to do a room-by-room inspection of the home. FHA appraisers must conduct a rigorous inspection of homes with "excessively wet basements," "faulty mechanical systems" that include the heating, plumbing and electric systems, and any foundation or structural failure found in the home.
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