by Christopher Stjernholm

A residential appraisal is an unbiased estimate of the true (or fair market) value of what a home is worth, in the current real estate market. Buyers typically need a mortgage loan to afford a home so a mortgage lender will order an appraisal to ensure that they are able to safely lend the money required by the buyer in order to pay for the property. The appraisal protects the lender. 

Sometimes, a seller will order an appraisal report before selling so that they know how much they can sell the home for. The end result of the appraisal process is to ultimately receive an appraisal report detailing the steps taken to arrive at a final home value.

How long does the home appraisal take?

An appraisal can generally take anywhere from two days to one week to be completed from the time it is ordered by the loan officer or the mortgage company. The length of time varies depending on the approach that the appraiser takes. Appraisers use three different methods to appraise the property and sometimes they use a combination of all three:

• Cost Approach: The cost approach is a valuation method that indicates the price a buyer should pay for a piece of real estate based on what it would cost to build something equivalent in today’s market. The market price is equal to the cost of land, plus cost to construct the building, minus depreciation.

• Income Approach: This approach looks at how much is the property rented for and how much income it can generate. From there, a value of the property is taken.

• Sales Comparison Approach: Comparable sales in the neighborhood. This is the most common approach used to conduct an appraisal.

Sometimes, an appraisal only takes a few hours depending on how much involvement is (how many approaches are taken) required for the appraisal management company to assess a value and also how active the current real estate market is.

What happens during the appraisal?

There are three main components of home appraisal: The physical inspection, the comparable sales section, and the evaluation of the data.

Physical inspection

This portion of the appraisal happens when the appraiser examines the actual property. They will determine if the condition is average, good, fair, or poor, all of which impact the home’s value. 

Most appraisers use a standardized form to complete the appraisal. Below are some factors that appraisers will be taking into consideration when examining your home to conduct your appraisal.

Exterior Factors:

• Structure – An appraiser is going to look for any deficiencies that affect the structural integrity of the house and also the livability.

• Construction quality – Materials used on the home can affect the quality of the construction. For example, a house made of brick vs. stucco would be taken into consideration.

• Roof and foundation integrity – The age or material of the roof will affect the value. Some shingles last longer than other ones.

• Neighborhood – If the property is near good schools, parks, recreation, low crime, etc, then those factors will increase the property value.

Internal Factors:

• Square footage – The market largely drives the price per square foot of a home so this will be an important factor when determining the appraisal price.

• Functional layout – An open floor plan vs a closed floor plan is an example of functional layout.

• The number of rooms – how many and the size of bedrooms, bathrooms, and kitchens will be examined.

• Interior condition – Is there mold, paint issues, etc. Or is the home in perfect condition? Appraisers look at this when determining an accurate valuation.

• Structural integrity – An appraiser is going to look for things like a crooked floor, old windows, leaking pipes, etc. to make sure the structural integrity supports the value of the home.

Comparable sales (comps)

The appraiser will look at comparable properties to determine a fair market value based on the current housing market. Below are several factors that go into looking at comparable sales.

Recent Time Frame of Sale: Appraisers generally try to look at the last three-six months to find comparable sales.

The proximity of Comparable Properties: An appraiser will research similar properties within a certain radius of the one being appraised. Ideally, one-quarter to one-half mile to the property in question. The closer the comparable homes are to the property being appraised, the better.

Square Footage is Similar: The square footage of the homes can be compared, depending on the size; each home being compared needs to be relatively the same size. Ideally, the compared home needs to be within 10% of your subject property’s square footage. 

Just because one home is 1,000 square feet doesn’t mean doubling it will accomplish determining the value of a 2,000 square foot home. Usually, the per square foot cost of a larger home is higher than smaller homes.

Similar Construction Style and Age: The value of a home also varies based on the character and overall appeal of the home. Maybe there is a tile roof (which has a 50-year lifespan) instead of a standard shingled roof (which has a 25-year lifespan). Another example could be a home built in 1890 is next to a home built in the late 2000s. Comparing those two homes wouldn’t make sense because there are so many differences in homes during a time span that large.

Lot Size is Similar: In various developments, there might be a varying amount of lot sizes. For example,  the side of the lot or the backyard is small, and with or without grass, vegetation, etc. 

Most places calculate the lot size from the square footage divided by 43,560 square feet (which is one acre). A quarter-acre is about 10,890 square feet. Comparable sales shouldn’t look at lot sizes that are very different in size.

Comparable Homes are Similar in Condition: It can be hard to determine the condition of a comparable property. For example, a foreclosed home, which is missing stoves, tubs, toilet etc, is worth a lot less than a home that is move-in ready with new appliances, upgrades, paint, etc. If a home is being compared in a subdivision, with an HOA and strictly enforced guidelines, then it might be easier to find closer models to use as comparable sales.

Evaluation Of Data

After everything is taken into consideration, a final report of value is generated for the buyer and seller to look at. This report will provide a complete property analysis, outlining how the appraiser calculated the home’s worth.

The final report will generally cover the following items:

• Size and condition of the house because the going price per square foot will affect the price as long as the conditions are satisfactory.

• Maps and photographs of various items around the property

• Comments about serious structural problems (cracked foundations, wet basements, windows that need replacement and roofing)

• Permanent fixtures (lights, ceiling fans, and plumbing)

• Details about updated kitchens, bathrooms, or new flooring

• Comments about the surrounding area, including positive and negative notes about the neighborhood

• A detailed market analysis, including recent sales of comparable homes