Important points to remember:
- An appraisal report provides a detailed assessment of a property’s market value, supported by data such as comparable sales, photographs, and notes on the property’s condition.
- Understanding how to interpret an appraisal report begins with comprehending each section, from property specifics to the final valuation.
- Distinction should be made between an appraisal and a home inspection, both reports should be reviewed before finalizing a transaction.
Reading an appraisal report can seem daunting, resembling a mix of a spreadsheet and a legal document. However, this report plays a crucial role in determining the progress of your loan, and it is essential to delve into the details beyond just the final figure.
Whether you are purchasing a house in Wichita, KS, or selling a property in Laurel, MD, understanding how to read an appraisal report, its contents, and how it complements your home inspection can be beneficial.
What is the purpose of an appraisal report, and who benefits from it?
An appraisal report serves as a documented evaluation of a property’s estimated market value. It presents the appraiser’s conclusion along with the supporting research. Typically, the report is submitted to the lender who requested it, with a copy provided to the homeowner.
While the buyer often covers the cost of the appraisal, the report primarily serves the lender. Courtney Prentice from Rally Appraisal explains that the appraiser is an impartial party hired by the lender to determine the property’s fair market value. The lender uses this value to guide them through the buyer’s loan process, ensuring they do not approve a loan based on an inflated property price.
In most cases, the lender does not directly select the appraiser but orders the appraisal through a management company. This system prevents bias in determining the property’s value.
In essence, the appraisal report safeguards the loan while providing valuable insights into the property’s worth.
How to analyze an appraisal report, section by section
While formats may vary slightly, most residential appraisal reports encompass essential components. Here’s a breakdown of what each section entails.
Description of the property and its condition
During the assessment, the appraiser inspects the property, takes measurements, photographs, and notes the condition of various elements. The report details information such as square footage, bedroom/bathroom count, lot size, age of the property, recent upgrades, and overall condition, including any visible wear.
Neighborhood and market trends
The report considers the property’s surroundings, including neighboring land usage, neighborhood developments, and market price trends.
>>Also Read: Overview of the U.S. Housing Market by Redfin
Comparative sales and adjustments
This section is pivotal in most reports, as appraisers utilize the sales comparison method by analyzing recently sold properties similar to the subject property. Adjustments are made for differing features, ensuring a fair comparison.
Given that no two properties are identical, adjustments are necessary. For instance, if a comparable property has a finished basement that the subject property lacks, the appraiser will adjust the sale price to reflect this distinction.
Photographs, sketches, and maps
Visual representations, including photos of the property and comparables, floor plan sketches, and maps indicating the locations of comparables relative to the subject property, are commonly included in the report.
Final value assessment
After evaluating comparables and adjustments, the appraiser arrives at a final value opinion, supported by thorough analysis.
Certifications and limitations
The concluding pages outline the appraiser’s verification scope, certifications, license information, and any assumptions or limiting conditions affecting the valuation.
Appraisal report vs. home inspection report
One common misconception in the homebuying process is conflating home appraisals with inspections. Marty Goldsmith from Gold Home Inspection clarifies that these reports serve distinct purposes. While an appraisal focuses on determining a property’s market value, an inspection assesses the condition of the property’s systems and components. It is crucial to review both reports to gain a comprehensive understanding of the property’s value and condition before closing.
A simple way to differentiate them is that an appraisal deals with price, while an inspection addresses condition. Both reports are essential for informed decision-making.
>>Read: Inspection vs Appraisal for Home Buyers
Utilizing your appraisal report and inspection in tandem
Upon receiving both reports, it is crucial to analyze them simultaneously. Note any discrepancies or questions raised in one report that the other may clarify.
Addressing concerns raised by the appraiser
Sometimes, the appraisal may highlight issues that require further inspection for clarification. In such cases, collaboration between the appraiser and inspector can provide comprehensive insights. Charles Strickland from Preferred Home Inspections illustrates how their expertise can complement each other in addressing property concerns.
If the appraiser identifies potential issues such as an aging roof, the inspection report may offer detailed insights into the condition, aiding in a thorough evaluation.
Dealing with significant findings from the inspection
Discoveries made during an inspection can impact the transaction process. Les Hanna from Hanna Home Services advises a thorough review of the inspection report with your agent to understand the implications before closing.
Collaborating with your agent to navigate through inspection and appraisal findings will enable you to make informed decisions, whether negotiating repairs, adjustments, or proceeding as planned.
Approaching closing with comprehensive knowledge
Understanding how to interpret an appraisal report can alleviate any apprehension. It provides a holistic view of your property, neighborhood, and market, aiding the lender in making informed decisions. Reviewing the report alongside your home inspection findings ensures a thorough understanding of the property’s value and condition. For guidance on interpreting either report, a Redfin agent can provide expert assistance.