What Does an Appraiser Look for When Appraising a House for a Mortgage?
When you purchase a house with mortgage financing, the lender must to establish the value of the house through an independent appraisal. Since the bank will loan a certain amount of money based on the value of the home, an independent written opinion of that value helps ensure that the mortgage company has collateral enough to secure the loan. An appraiser uses several criteria to establish the home's value.
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Comparables
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A major factor in establishing the value of a home is the price for which other homes like it in the same area are selling. A real estate appraiser researches information from multiple listing services and local taxing authorities to check the selling price of other homes in the area. The appraiser will include these homes and their selling prices in the appraisal of the subject home. Comparable sales must be at arms' length, which means that there are no outside factors influencing the sale, such as related buyers and sellers or creative financing arrangements. These factors can affect the sale price of the home.
Gross Living Area
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A real estate appraiser calculates the gross living area of a home. This is a measurement that determines how many square feet in a home are available for the occupants. Gross living area is then used to compare the subject home with other homes in the area, and is used to account for differences between comparable houses. Often an appraiser will figure the price of the comparable homes by square foot to offer a uniform comparison.
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Replacement Costs
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The cost to replace the home is considered in a real estate appraisal, because the mortgage company assumes that nobody would pay more for the home than the price they would pay to purchase the land and build the same house. Construction costs are estimated per square foot of gross living area, and vary depending on the type of home and the quality of the building materials used in its construction. The appraiser uses the average construction costs for the area in this calculation.
Physical Inspection
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Much of the information that an appraiser uses can be obtained from the Internet or other sources, but most mortgage appraisals for the purchase of a home use a physical inspection of the home as part of the process. The appraiser verifies the size of the home by measuring the home and the rooms inside. The appraiser also verifies the overall condition of the home and that it is completed. While the appraiser may look at some physical systems to determine how the home is equipped, a property appraisal is not a home inspection to determine if the home has structural problems or other deficiencies.
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References
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