How are appraisals calculated?
Appraisals are an important part of the home buyer or selling process. The appraisal basically tells you how much your home is worth. This process tells you if you are paying too much, pay too little or being over or under insured. You obviously do not want to pay more for a home than it is worth, but if it is drastically under market value, one might be tipped off that there is a problem.
When lending on a certain property, banks want to make sure that the amount of money that they are lending is worth putting into that home. If a home only appraises for $120,000 and they are asking $150,000 for it, the bank will never loan this amount on the home. The home would already be upside down $30k in the event of a sale or refinance.
An appraiser is a highly trained individual. These people carry a high level of expertise and are very knowledgeable regarding the market. It would be beneficial if your home was exactly the same as your neighbor’s home, unfortunately that usually is not the case. The appraiser will take comparable properties from the neighborhood and what they have recently sold for to figure your property value. This protects the appraiser and allows them to make an unbiased market value on the home.
The appraiser will calculate all of the comparable homes and also will look at other homes similar to the one in being appraised. They will also make the property adjustments, either more or less money, for differences. Unless they have made a large error, their appraisal is indisputable.
The process of finding the comparable properties may not always be so easy. If no homes are available in the immediate area, the appraiser might have to branch out into other nearby areas. With the state of the housing market, going back a few years to sales in the area might not produce accurate numbers, as the market has changed so drastically. On top of the comparable properties, the appraiser is going to be looking for “site size, age, quality, condition, gross living area and amenities, including a fireplace, A/C, pool, garage etc.” All of these qualities about a home will help to increase or decrease the compared properties value against yours.