Topic 6: Overview of a Real Estate Appraisal

Now, we're going to take a look at what a real estate appraisal consists of. As mentioned in the previous blog post, there are different types of appraisal used for different purposes. One of the most common appraisals is that of a home appraisal. So let's check out the link below to learn a little bit more:

http://home.howstuffworks.com/real-estate/home-appraisals.htm

The above link talks about the differences between an inspector and an appraiser and how most banks will require an appraisal before lending to a borrower. There are two types of of appraisals used for home mortgages, the cost approach and the sales comparables approach.

The appraisal report generally includes:

• an explanation of how the appraiser determined the value of the property
• the size and condition of the house and other permanent fixtures, along with a description of any improvements that have been made and the materials used
• statements regarding serious structural problems, such as wet basements and cracked foundations
• notes about the surrounding area, such as new or established development, rural acreage, and so on
• an evaluation of recent market trends of the area that may affect the value
• a comparative market analysis that supports the appraisal
• maps, photographs and sketches

Eventually, there will be an appraised value of the house that will show how the market price should be set and what should be paid for the property. 

Appraisals are also used by the banks as well as the buyers and sellers in the real estate market. Let's take a look at what the banks look for in an appraisal when considering granting a loan to a borrower:

http://budgeting.thenest.com/bank-consider-appraisal-mortgage-4092.html

The biggest thing that banks look at when granting a loan to a borrower is obviously the appraised value of the property. The bank will traditionally loan 80% of the purchase price of the property to the borrower, requiring a 20% down payment. But the bank also wants to ensure the the borrower of the property can not only afford the mortgage, but also that they are loaning the appropriate value for the property and are not loaning too much.