As someone that wears alot of different Real Estate ‘hats’, if you will, I often get alot of phone calls from clients, friends, and my competition regarding appraisals. As a NYS Licensed Certified Appraiser, I often read many things across social media platforms as well, most of them not flattering to the appraiser(s).
Some are from agents. (Not smart)
Some are from angry homeowners.
At the end of the day, what most people don’t understand is that there is a process for coming up with a value. It’s not just pulling comparable sales (although that’s what everyone thinks).
Identify the property/Property Inspection
When doing an appraisal, an inspector comes to inspect the property and while doing so, will see how the ‘subject property’ compares to the other homes on the market.
Some appraisers will measure the home, take various pictures, ask about any ‘known’ defects of the property.
Prepare workfile/get comparables/work various approaches to value
There’s alot in this last title.
There’s a reason for that.
There’s alot of work completed in the title.
While doing the appraisal, they will pull comparable sales and see which one’s are most similar to the subject property. Understand one main thing here – Different appraisers will have different opinions as to what is most comparable. However, if you had two appraisers pulling comparables the chances that they haven’t looked at the same comps are rare.
Once they have made those choices, they will look at other approaches to value.
Wait….you mean there are other approaches to come up with a value???
Yes, there are.
But here’s the catch, they aren’t used most of the time.
The other approaches are the Cost Approach and the Income Approach to Value.
The Cost Approach to Value is essentially if you reconstructed the entire home from scratch, what the value would be. Obviously those numbers would be very subjective based upon an appraisers opinion on construction costs and land value.
The Income Approach to Value is most used for properties with rental units involved. It takes into account the rental income and the expenses of the building to come up with a value. It then takes that number and uses a Capitalization Rate, which is essentially a risk assessment, to come up with the value.
After reviewing these approaches to value, the appraisal goes through a process called Reconciliation. This process is when the appraiser reviews all of these approaches to value, and determines which is most appropriate to use to come up with the value.
Once the appraiser has decided what approach to use, they begin the process of formulating the report to be submitted to the lender, court, or local municipality.
Understanding the Purpose of the Appraisal
Many people think the appraisal is just an arbitrary process which prevents them from getting there home. The thing is a necessary function of the mortgage process.
The lender (or bank) uses the appraisal to help determine the risk associated with lending to the potential borrower. They obviously uses many different things to determine their risk.
Sometimes though…..it obviously doesn’t work out so well because, as we saw a few years ago, the lender sometimes loosen their standards.
Which is why the National Association of REALTORS came out with a policy on Responsible Valuation Policy (you can click on the link to read it), which goes into best practices for appraisals and lenders.
Another great resource for information is the Appraisal Institute, which also looks to get things done with helping consumers understand the appraisal process and looking to advocate for appraisers around the country.
Have more questions regarding the process?
Curious to what your home would appraise for?
Feel free to contact me and I’ll be happy to help you understand the process……
About the Author: The above article, Understanding Appraisals of Staten Island homes…., was written by George S. Wonica ‘Jr.’. George is a NYS Licensed Associate Broker, NYS Certified Real Estate Appraiser, NMLS Licensed Mortgage Broker, and NYS Licensed Instructor. George has been a practicing REALTOR® since 1992 for the family owned and operated, Wonica REALTORS® & Appraisers, Inc.
George can be reached via email at [email protected] or by phone at 718-442-2880 x. 105. He has helped many people buy and sell homes in Staten Island over the past 26 years. George is also a contributor writer for the North Shore Local, an local neighborhood paper.
George can be found on various social media platforms which include Facebook, Snapchat (gswonicasells), Instagram & Linked In.