How Does a Bank Appraise a Home?

How Does a Bank Appraise a Home?
How Does a Bank Appraise a Home? (Image: John Panella)

Why a Bank Appraises a Home

When you go to a lending institution for a mortgage or a home equity loan it will order an appraisal of the home. The bank is making an investment by lending money on this property and it must know that its investment is as secure as it can be. The bank first will conduct an investigation of the buyer, including the buyer's credit, job history and other financial information. Next, the bank will want to know if the property is worth the investment it is about to make. This is where the appraisal comes in. Banks normally have a list of licensed appraisers that they use for this service and will assign appraisals based on the appraiser's certifications. The appraiser completes the property appraisal and sends the report to the bank. If the appraiser's valuation of the property is in accordance with the loan amount, the bank can lend on that property. If the appraised value doesn't meet the bank's standards, then the sale price or the buyer's part of the investment must be adjusted. Either way, banks are follow strict guidelines on how they lend money based on the value of the property.

Viewing the Property and Comparable Properties

When an appraiser gets an order to conduct a property appraisal, he will call the property owner to set up an appointment to gain access. The appraiser take measurements to get square footage of the property. He will take pictures of the front, side and rear of the home and anything that may be special about the property such as a waterfront. He goes through the house, taking notes on rooms, construction, age and special features. He will note such things as inground pools and detached buildings such as sheds and garages. When the appraiser is finished, he will drive by some recently sold properties in the area that are comparable to his subject property and take a picture of the front.

The Appraisal Report

This is when the real work of the appraiser starts. The appraiser must compare properties that have sold in the past six months to a year to the subject property to arrive at a value. He does this by researching each one of the comparable properties and making adjustments to them to make them exactly like the subject property. He finds his information in a Multiple Listing Service database and on Public Records. He will adjust items such as square footage, construction, age, location and special features by adding or subtracting to the comparable properties. Many of these adjustment figures come from a book of what the average price of the feature is. He needs at least three comparable properties to complete his report. When he has found the value of the property, he writes the report and submits it to the bank's loan processor who determines if the property meets the bank's standards for the loan.

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