Home Appraisal

Contents

1. What an appraisal is and whom it serves
2. When the value comes in low
3. Desktop, hybrid and data driven valuations
4. The vocabulary worth knowing

Mike Kobeissi is a California real estate broker; in a financed home purchase the appraisal is the step that tests the agreed price against an independent opinion of value. The process runs in a fixed order. Once buyer and seller sign a contract, the buyer’s mortgage lender orders the appraisal and the borrower usually pays for it, a fee that Kiplinger’s guide to the process puts at roughly $325 to $1,000 depending on the property’s size, complexity and location.² A licensed appraiser then makes an appointment, walks the interior and exterior, and notes condition, size, layout and features in a visit that can last from half an hour to several hours. Because no two properties or appraisers are alike, the length and depth of that visit vary.

Next comes the comparison. The appraiser sets the house beside similar homes nearby, above all those that changed hands recently, drawing on sales data, shared listing records and county files to reach a figure for fair market value.² The findings are written up in a report for the lender, and the borrower may ask for a copy and read it before closing day.²

Figure

How a purchase appraisal moves

1. 01
   OrderThe mortgage lender orders the appraisal; the borrower usually pays the fee.
2. 02
   VisitA licensed appraiser inspects the inside and outside, judging condition, size and layout, in thirty minutes to a few hours.
3. 03
   CompareThe appraiser weighs the home against similar nearby homes that recently changed hands, drawing on sales data and county records.
4. 04
   ReportThe findings go into a written report delivered to the lender.
5. 05
   ReviewThe borrower can request a copy and read it before closing day.

What an appraisal is and whom it serves

The Consumer Financial Protection Bureau defines an appraisal as a written opinion of how much a property is worth, an independent assessment that describes what makes the property valuable and may show how it compares with others in the neighborhood.¹ A lender may require a new one before lending against a home and may also use other ways to check value. For a typical first mortgage on a residence, the borrower is entitled to copies of the appraisals and opinions of value the lender obtains, delivered soon after completion and no later than three days before closing, and copies cannot carry a fee of their own.¹

The appraiser works for the lender, not for either side of the deal. The report’s job is to confirm that the house is adequate collateral for the amount being borrowed, which protects the lender from lending more than the home is worth and tells the buyer whether the agreed price is supported.² Because financing is so common, the step is close to universal: Kiplinger cites the National Association of Realtors figure that about 81 percent of primary residence purchases involve a mortgage, along with 43 percent of vacation home purchases.² Lenders sometimes accept lighter methods, such as virtual or desktop appraisals, chiefly for refinances and home equity lines of credit, but the guide notes that for purchases a full appraisal in person remains the standard because it captures both the property’s condition and local market trends.² An appraisal measures value, while an inspection assesses physical condition, a separate step covered under home inspection.

When the value comes in low

A valuation below the contract price is the moment the appraisal matters most. Banks will not lend more than the appraised value, so a buyer relying on a loan must find the difference in cash, renegotiate, or step away. In one 2012 survey reported by Kiplinger, Realtors said appraisals had held back more than a third of sales over the preceding three months: 9 percent saw a contract delayed by a low figure, 15 percent saw one renegotiated to a lower price and 11 percent saw one cancelled.³

Figure

What low appraisals did to contracts

• Contract delayed9
• Renegotiated to a lower price15
• Contract cancelled11

The same piece listed the responses a spokesperson for the association described. A seller can ask the lender that ordered the appraisal to have the appraiser explain or support the conclusion, or to consider additional comparable sales; a party can seek a second appraisal, especially when the first came from someone unfamiliar with sales in the area; and a buyer whose contract depends on financing may be able to cancel. A later editor’s note added that concerns go to the lender, not to the appraiser directly.³ Kiplinger’s newer guide adds that a buyer with an appraisal contingency can adjust the contract to the new price, and one without it may end up paying more than the appraised figure.²

Desktop, hybrid and data driven valuations

The traditional visit has been joined by alternatives. In 2020 and 2021, one appraisal technology executive told HousingWire, loan volume stretched nationwide turnaround times to the longest he had seen in a decade. The responses aimed at supply, by easing entry into the profession, and at demand, as the government sponsored mortgage enterprises reduced the number of loans that require a full appraisal or one that takes the appraiser less time.⁴

Desktop appraisals became a permanent option for certain loans in March 2022, HousingWire reported, after pandemic era flexibilities had accustomed appraisers to working from home; the executive interviewed claimed accuracy on par with the traditional process and turn times about five days shorter on average.⁵ Fannie Mae’s Selling Guide defines the desktop report as one whose minimum scope does not include a current inspection of the property or the comparable sales by the appraiser, who relies instead on data from other sources, which can include photographs, video and machine generated floor plans. The format is limited to purchases of one unit principal residences with a loan to value ratio of 90 percent or less; condominiums, second homes, investment properties and refinances are excluded. The guide requires the same exhibits as a traditional report plus a floor plan, lets the appraiser accept photographs and data from a party with a financial interest in the deal only after verifying them from a disinterested source, and leaves the lender responsible for the accuracy of the property description.⁶

Fannie Mae’s valuation page arranges the options along a spectrum, from data driven value acceptance, where models confirm the price without an appraisal, through hybrid and desktop appraisals to the traditional visit, which it describes as always available and suited to complex properties or places where data is sparse.⁷ The pictures a listing already carries can feed these methods, which ties the subject to real estate photography and video.

Figure

Fannie Mae's valuation spectrum

1. 01
   Value acceptanceData and tested models confirm the purchase price with no appraisal.
2. 02
   Value acceptance plus property dataA trained, vetted collector visits and reports facts; the lender reviews them.
3. 03
   Hybrid appraisalA collector gathers the data and an appraiser uses it in place of a personal visit.
4. 04
   Desktop appraisalAn appraiser works without inspecting the property, from agent, owner, listing and tax record data.
5. 05
   Traditional appraisalAn appraiser visits, collects the data and completes the report; always available.

The vocabulary worth knowing

A few terms recur in every appraisal. Fair market value is the figure the report estimates, an unbiased opinion that can differ from the negotiated price.² Comparable sales, or comps, are the recent nearby transactions the appraiser weighs against the subject house.² An appraisal contingency is the contract term that lets a buyer revisit the price or withdraw when the valuation falls short.² A reconsideration of value is a request, routed through the lender, that the appraiser review added information; the 2012 Kiplinger piece describes this route,³ and HousingWire’s interview names its handling as one way lenders can work better with appraisers.⁴

Newer terms describe the data driven end. Value acceptance is Fannie Mae’s name for confirming a price from data and models with no appraisal at all. Property data collection is a standardized visit by a trained, vetted collector who records facts such as photographs and a floor plan but gives no opinion of value; a hybrid appraisal hands that data to an appraiser, and a desktop appraisal is completed without a physical inspection.⁷ Collectors pass an annual background check and training, use phones, tablets or web tools to capture photographs and a floor plan drawn to a national measurement standard, and certify that the data was gathered objectively.⁷ An appraisal waiver skips the full report altogether; HousingWire’s 2022 interview described the other government sponsored enterprise’s automated collateral evaluation, paired with a property data report and effective that July, as the next generation of such waivers, since a collector still documents the home’s condition.⁵ A turn time is the interval from order to finished report, a measure that stretched badly during the loan volume of 2020 and 2021.⁴ For a typical first mortgage the finished report reaches the borrower no later than three days before closing, which leaves time to read these terms against the actual document.¹ Whether a particular valuation is sound, and what to do if it is not, is something to work through with the reader’s own lender and advisors.