by Cindy Nemeth

You picked out your house, and it is perfect. It is worth lots of money, and you are willing and ready to pay it, but is your potential lender willing to pay? Not without an appraisal.
Don’t worry, you are not directly involved in this part of the home-buying process adventure. The lender is the one to order the appraisal, the one to send the appraisal request to an approved appraiser. Typically, the listing agent or the seller’s real estate agent is the person to meet the appraiser at the property–your potential home!

What is an appraisal?

An appraisal is typically a written report that supports the appraiser’s opinion of the estimate of value. This value estimate may or may not equal the contracted price that you, as the buyer, and the seller have agreed upon. The appraiser’s estimate of value is a third-party opinion; in other words, the appraiser has no interest in the property; therefore, the appraiser can be impartial about the value of the property. 

You as the buyer, may have fallen in love with the pool, the hot tub, or a walk-in cedar closet, but those items may not impact value. The contracted price of your potential home has to be supported from the market; i.e., recent sales must support what you as a buyer are willing to pay and what the sellers are willing to sell the property for. The appraiser analyzes this information to arrive at an estimate of value. 


Why do I have to have an appraisal?

The law requires that a federally funded mortgage transaction have an appraisal to support the lender’s funding of the loan. The appraisal also verifies the lender’s investment or equity in the property. Typically the lender is lending a larger percentage of the purchase price to you, the buyer, so that you can purchase the property. The lender wants to make sure that the property is worth what you’re paying for it. Lenders are subsequently reviewed by regulatory agencies, such as the State Banking Commission, for compliance on appraisals and other documentation pertaining to your loan.

How is the appraisal done?

The appraiser will make a physical inspection of the property, noting the condition and features of the dwelling. The appraiser’s inspection is different from the home inspector’s inspection, in that the appraiser is the only one to deal with value, while the home inspector looks for things that may be wrong or may cause a problem. 

Once the appraiser completes the inspection of the property, he or she makes a visit to the Town Hall or City Hall and obtains a copy of the property card from the Assessor’s Office as well as a copy of the current deed from the land records in the Town Clerk’s Office. This information is included in the appraisal report. The appraiser also researches the land records for recent sales of similar properties, known as “comparable sales” or “comps.” The appraisal format requires the appraiser to use at least three recently closed comparable sales to compare against your property.

If you are buying a ranch-style dwelling, the appraiser will choose three sales of recently closed comparable ranches, either within the neighborhood or within close distance to your potential home. The appraiser would not choose a two-family dwelling sale or a condominium sale to compare to a single-family ranch-style dwelling. The choice of sales includes among other items, the closeness, the date of sale, the building size, and other amenities, such as porches, decks, fireplaces, and garages. By this comparison process, the appraisal will arrive at an estimated value for your property.

What happens after the appraisal is finished? Can I get a copy?

The appraisal report is sent by the appraiser to the lender for review and compliance. The appraiser’s client is the lender; therefore, you must make a request to the lender, if you want a copy of the appraisal report . The appraiser cannot automatically give you a copy.

Once the appraisal is completed and reviewed, the closing process will continue. Depending on the lenders, the appraiser’s fee may be paid up front by you at the time of the inspection of the property, or it could be included as part of your closing costs.

What if my appraisal does not come in as needed?
 
An appraisal is an unbiased third-party estimate of value, so it may not come in at the price you contracted for. If you, the seller, and the real estate agents feel the appraisal hasn't considered all aspects of the dwelling and the market, you can certainly ask the appraiser to reconsider the value estimate. Your real estate agent can provide additional comparables that may support your contracted price. Your real estate agent can also have the sellers reconsider the contract, based on the appraiser's estimate of value.
 

How can I be sure that my mortgage rep is not inflating the appraisal?
 
The appraiser's signature is on the report. Appraisals sent by Email (and most are) cannot be changed. Once the appraisal is signed, the software will not allow/permit any changes.

As in any profession, there are good appraisers and not-so-good ones. Appraisers are licensed through the Department of Consumer Protection. Any complaints against an appraiser are available from the Department of Consumer Protection, so be sure to check. You can also check online at the Department of Consumer Protection Web site under the heading Real Estate to find out if an appraiser's license is current and/or if the appraiser is licensed. Be sure to check to see how long the appraiser has been in business. Time reveals a great deal.
 

Resources:
Connecticut Department of Consumer Protection, www.ct.gov/dcp or Real Estate Division-- Appraisal Licensing: 860-713-6050
 
Appraisal Institute, www.appraisalinstitute.org
Connecticut Chapter of The Appraisal Institute, www.ai-ct.org or 860-482-8342
(Please note not all appraisers are members of The Appraisal Institute)
 

Cindy Nemeth has twenty years of  experience as a licensed appraiser in Connecticut and Massachusetts. She can be reached at cjmnemeth@cox.net or 860-651-7333.