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Why is an appraisal required?

An appraisal is an estimate of the value of a property. An estimate of the value of the property generally refers to its fair market value. The purpose and use of appraisals include transfer of ownership, financing and credit, taxation, condemnation, insurance and many others.

An appraiser is typically a state-licensed individual trained to render expert opinions concerning property values.

Authorized by Congress, The Appraisal Foundation sets minimum standards for licensed appraisers. The Foundation is the parent organization of the Appraiser Qualifications Board (AQB). States are required to implement appraiser certification requirements which are at least as rigorous as those issued by the AQB.Certified General Appraiser and Certified Residential Appraiser.

The AQB has issued criteria for the Certified General Appraiser and Certified Residential Appraiser. Each has education, experience, examination and continuing education requirements. Consider working with either a Certified General or Certified Residential Appraiser.

The appraiser considers three approaches to value when arriving at an opinion: sales comparison approach (formerly the market data comparison approach), cost approach and income capitalization approach. When evaluating single-family, owner-occupied properties, the sales comparison approach is most heavily weighted by an appraiser. This approach compares the subject property with other similar properties in the vicinity which have sold or are for sale. Real estate professionals also rely heavily on this approach.

Real estate agents approximate the appraisal process by conducting a Comparative Market Analysis (CMA), using the sales comparison approach to value. The accuracy of the agent's appraisal depends on the experience and skill of the agent. The CMA is not an officially recognized appraisal.

Most lenders will not lend money without an acceptable appraisal. You can be sure you are getting an expert appraisal when the appraiser is licensed or certified and is governed by the Competency Provision of the Code of Ethics of the Uniform Standards of Professional Appraisal Practice (USPAP), proclaimed by the Appraisal Foundation.

Appraisal Methods

Most appraisers use three approaches to establish the value of a property. The Sales Comparison Approach is normally considered to be the best indication of value for residential property.

  1. Sales Comparison Approach: In this approach the appraiser finds three to four comparable properties in the neighborhood which have recently sold. Ideally, these properties are within a one-half mile radius of the subject property and have sold within the last six months. The appraiser compares the sold properties to the subject property. The factors used in the comparison include square footage, number of bedrooms and bathrooms, property age, lot size, view, and property condition.


  2. Cost approach: This approach considers the value of the land, assumed vacant, added to the cost to reconstruct the appraised building as new on the date of value, less the accrued depreciation the building suffers in comparison with a new building.


  3. Income capitalization approach: In this approach the potential net income of the property is capitalized to arrive at a property value. This approach is suited to income-producing properties and is usually used in conjunction with other valuation methods. The process of converting a future income stream into a present value is known as capitalization.

How much does an appraisal cost?

The cost of an appraisal varies based upon the following factors:

  • Type of appraisal: The most commonly used appraisal is called the Uniform Residential Appraisal Report (URAR). Some lenders may accept an abbreviated appraisal called the "Drive By Appraisal", which costs less than the URAR.
  • Type of property: Appraisals for single-family homes and condominiums usually cost less than appraisals for multi-unit properties.
  • Value of property: Appraisals for higher-priced homes usually cost more than appraisals for lower-priced homes. If your home value is over $500,000, you can expect to pay more for your appraisal.
  • Location of property: The cost of an appraisal is affected by geographic location and availability of appraisers. In areas where appraisers are few, or the properties are hard to access, appraisal costs increase.
  • Use of property: Appraisals for income-producing properties, for example, usually cost more than appraisals for non-income-producing properties.  Rental property appraisals include a rent survey and the property's income statement. Appraisal fees on single-family, owner-occupied homes under $500,000 in densely populated areas vary between $250 and $400. Fees for similarly priced rental properties may vary between $400 and $550.

Reasons for an Appraisal

Appraisals are normally ordered when you are obtaining a loan on a property. However, there are many other reasons why you might want an appraisal.

  • To dispute your property taxes
  • To establish the replacement cost for insurance purposes
  • To settle a divorce
  • To settle an estate
  • To buy out a partner
  • To help negotiate a purchase price either as a buyer or as a seller
  • To satisfy the IRS
  • To settle a lawsuit
  • To protect your rights in a condemnation case

Who owns the appraisal?

In almost every case the appraisal is owned by your mortgage company, even though you may have paid for it. This is because your mortgage company orders the appraisal on your behalf, and the appraiser lists that mortgage company on the appraisal report. Even though the mortgage company owns the appraisal, you have the right to receive a copy. It is at the mortgage company's discretion whether to give you the original appraisal.

What if I decide to use another mortgage company after the appraisal has been completed?

This does not necessarily mean you will have to pay for another appraisal. Your first lender can transfer the appraisal to your new lender. Some appraisal firms may charge a small fee, however, because there is clerical work involved in editing the appraisal to reflect the new mortgage company. This fee is called an "Appraisal Retype Fee." The original mortgage company has the right to refuse to transfer the appraisal to another lender. In this event, you will need to get a new appraisal.

Can you increase the appraised value of a property?

In general you do not have much control over the appraised value of a property. The appraiser is assumed to be neutral, objective and capable of providing an unbiased valuation of the property. Here are some things you can do in the event you believe the appraised property value is too low:

  • Review the comparable sales used by your appraiser:
    Drive by the comparable sales shown in your appraisal and compare them to yours. Contact your RealtorŪ and get their opinion. You might be able to find sales the appraiser missed. There might be pending sales which will soon close. When pending sales close, they might influence the appraised value of your property.


  • Check the measurements of your home:
    Double check the accuracy of the appraisal report regarding square footage, lot size, number of bedroom/bathrooms, etc.


  • Find out if any of the comparable sales were sold under distress:
    A foreclosure or distress sale in your neighborhood can effect values. If you have evidence that a comparable sale was a distress sale, you might be able to get the appraiser to ignore that sale, or adjust your appraised value accordingly.


  • Get another appraiser:
    Consider getting a second opinion--a new appraisal by a different appraiser. In this event, make sure you get an appraiser who is familiar with the neighborhood.

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