Guide to Understanding a Residential Appraisal

10 Tips for Brokers to Help the Appraisal Process

  1. Don’t restrict the appraiser from making an appointment to inspect the property (if your MLS uses an appointment system, use it. You will be notified of the appraiser’s site inspection).

  2. If an appraiser calls, be responsive and provide as much information as needed. Return the call promptly even if your listing has closed. (Brokers are the expert source of information on your listing.)

  3. Be as descriptive in MLS as possible about your listing and include as many photos as your MLS system will allow (include photos of: Front, Rear, Street, and ALL major rooms & property features).

  4. Don’t use or reference tax records as your source of information. Do the proper legwork on your listing; it builds significant long-term credibility among your peers and local appraisers.

  5. Distinguish “above-grade” living area from “below-grade” living area in your MLS, particularly the quality of finish in below-grade living area, attics, bonus rooms, decks, porches, and so on.

  6. Provide an “Appraisers Package” in advance, and have it available at the property when the appraiser is inspecting the property, or meet the appraiser at the property so that you can answer any questions or inform the appraiser of the unique features of the property or neighborhood. Make sure you allow the appraiser the space and time to complete their inspection (Appraisers Package could include plats, surveys, deeds, covenants, HOA documents, floor plans, specifications, inspection reports, neighborhood details, recent similar-quality comparables, detailed list and dates of upgrades and remodels, and energy-efficient green features).

  7. Provide a fully executed copy of the purchase contract, with all addenda.

  8. Explain, to the seller or buyer that the roll of the appraiser is not to confirm the sales price but to provide the lender an independent, objective and impartial opinion of the value of the underlying collateral which the loan would be based on. Provide the seller or the Buyer a copy of the brochure developed by The Appraisal Foundation entitled “A Guide to Understanding a Residential Appraisal,” available from NAR to view or download at http://www.realtor.org/appraisal/a-guide-to-understanding-a-residential-appraisal.

  9. Real estate salespeople and consumers can be present during the appraisal inspection. Make sure all parties allow the appraiser the space and time to complete their appraisal inspection, uninterrupted.

  10. Make sure the property condition (inside and outside) is the best possible for the appraisal inspection, and inform the seller that interior and exterior photos (and measurements) must be taken by the appraiser.

Vic Knight

Vic Knight has been a licensed real estate broker in North Carolina since 1984. He's also a Certified General Appraiser in the state and is past president of the North Carolina Association of REALTORS®. He has chaired NAR's Appraisal Committee and currently is a member of the Board of Trustees of The Appraisal Foundation. Vic’s nearly 30 years in the real estate business includes owning and managing a Century 21 residential brokerage firm, extensive residential and commercial development, and residential property management. Vic is currently the owner of Appraizr.com, a real estate consulting and full-service residential and commercial appraisal firm. Vic is a graduate of the Instructor Training Institute and has authored and taught numerous real estate brokerage CE courses since 1998. He holds a BS in Civil Engineering from North Carolina State University and was a practicing professional engineer with the Bechtel Corp., an international construction company headquartered in San Francisco, Calif. Vic is chair of the North Carolina Real Estate Commission, a position appointed by the governor.

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Comments
  1. Belinda Mercado

    your link above in the article dose not work.

  2. I understand an appraiser’s need for the contract and addenda, but for a truly honest and real appraisal of value, I think we should be able to white out the contract price. I think many appraisers use the contract price as a start, and then work the numbers and comps to fit it. When I do a Market Value Analysis for a client, I don’t have anything to use as a guide or a starting point. I use all available data. Several times I’ve been more accurate as to predicted sales price than an appraiser was (one property in question had 5 appraisals before closing and ranged from 5k to 50k off of the final sales price, which I was off by $2500 in my MVA).

  3. DAN

    Mr. Knight,

    I hope you read this.

    I wanted to discuss a real problem we are having with appraisals these days. I work for a local builder in The Tampa bay area of Florida. We build on your lot or we tear down old homes in neighborhoods and rebuild. Many clients contact us to rebuild, but their existing home is located in an old inner city neighborhood. Most of the homes we replace are built in the 30s, 40s and 50s and are made of wood so they are un-insurable with our current citizens insurance in Florida. The problem is there is no chance these days to get a reasonable appraisal to build a new home in an inner city neighborhood. So essentially the new current system is redlining entire areas of Tampa bay. This should be illegal and nobody is talking about it. I do not know if this exists in other areas but we must change this. How can I make a change. Can you offer any advice?

    Thanks for any advice!

  4. Belinda – Try this link: http://www.realtor.org/appraisal/a-guide-to-understanding-a-residential-appraisal

    Brian G. – Appraisers don’t NEED a contract to value properties, nor does having one mean that they can’t given an honest opinion of value. When you consider the wide range of appraisal assignments that appraisers complete every month, only a fraction of them are sales (contract available). The Uniform Standards of Professional Appraisal Practice (USPAP) REQUIRE that appraisers obtain and analyze all listings and contracts for the subject property as well as prior sales. It’s NOT a short-cut to value. It IS a check to be sure that the participants to the transaction are being honest and that the sale is truly an arm-length transaction with no concessions, rebates, etc.

    Having said that. . . .be careful what you wish for. Most appraisers understand that properties have a “range of value”. AND your client’s property may have a value that falls within that range. But what if the adjusted market value range is $65k to $70k, and the appraiser reconciles to $67k (honest opinion)? The contract (you don’t want provided) is for $67,500. You know what happens next. Everything starts to unravel because the appraiser is $500 short.

    Now, supposed you HAD provided the contract. The sales price falls within the range of value and it would be practical and reasonable for the appraiser to reconcile to that slightly higher number. Isn’t that a better way to go?

  5. Stacey Moncrieff

    Belinda, try copying and pasting this into your URL field: http://www.realtor.org/appraisal/a-guide-to-understanding-a-residential-appraisal Or, you could search for “Guide to Understanding a Residential Appraisal” in the search bar of REALTOR.org. Sorry about that!

  6. Greg

    Of course appraisers should get a copy of the contract! And if there were multiple offers I give them a copy of those offers too! They are there to determine market value aren’t they? What better indicator of market value is there than 5 offers from 5 buyers on the same home?
    Recently had that situation in a neighborhood without much turnover, and the few sales that did happen were of homes in need of much repair. This home was immaculate, completely updated and lots of upgrades. We had 4 offers between 160-167k, and 1 cash for 155k; but appraiser decided to only adjust 5k for 20k worth of damage to the comps (1 comp was from over 7 months ago!). He appraised the home at $150k!?!!! How that makes sense I have no clue.

    The appraisal murdered the sale. Seller couldn’t sell that low, had to cancel the contract with the great family that bid the most, and sell to the cash buyer that couldn’t care less about appraised value. Buyers are out 1k in inspections and appraisal fees, seller is out 12k in lost equity and an extra month of mortgage payments with the waste of time.

  7. Excellent article. I always meet the appraisers at the property just to be sure that they have all the information necessary. I too, follow up with the appraiser and create a repor. You did your due diligence and thank you for sharing a superior article.

  8. Tim In Fla

    This is not much. The lenders, or AMC, “package” for the appraisers typically includes; a 15 page letter of engagement outlining what the appraisers can use for acceptable comparable sales, the distance, the acceptable sales dates, the size and age of the comparables, what can and cannot be included in value, the required specific verbiage that must appear in the report and where, (varies by AMC), the acceptable % of adjustments, bracketing guidelines, photo requirements, appointment times and delivery of the report times, status update requirements, required additional exhibits, addtional comparables int he area that were NOT used in the report and why, course of discusssion or regulated prohibited discussion with any parties not affiliated with the lender or AMC, no fee discussion and agreement for fee offered, dress code and onsite interaction requlations. Response time for clarifications and revisions. Automated review standards for report upload through the AMC’s portal system, with any and all lender overlays beyond typical usual reporting. Reconcile the final opinion of value with AMC’s or lenders AVM.

    It’s usually a pretty one sided “agreeement” and fairly exhaustive. So anything the Realtor might provide may, or may not, be allowed to even be considered. The main tip for Realtors to know; the appraiser has little control or independence over the reporting and delivery of the appraisal.

  9. Domer J Huffman III, RAA

    Very good article, well put. It should be required reading in central Illinois. The statement “Explain, to the seller or buyer that the roll of the appraiser is not to confirm the sales price but to provide the lender an independent, objective and impartial opinion of the value of the underlying collateral which the loan would be based on.” really needs to include the Realtor also, around here they seem to believe our job is to justify the contract amount, when that does not work the Bully mode kicks in and here comes a dozen ranch sales for a failed 2 story deal, not to mention burning up the hate speech at the water cooler. Over 25 years in this business and they still influence the lenders as to who is on the ‘approved list’ or try to control who does the appraisal, even to the point the appraiser(s) who they do not want to do it are included in the contract.
    Tip 5 is excellent, the appraisers on our board have been trying for years to get this type of action, also to get the room count to only include above grade room count or to specify which rooms are actually below grade, especially bedrooms and bathrooms but I think the Realtors feel as though it is not beneficial for their marketing to reveal they are trying to sell a 2 bedroom house when the other 2 bedrooms of the 4 bedroom house are in the basement. The buyers don’t read the appraisal (unless the deal doesn’t work) and try to resell later or refinance and find out it is actually a 2 bedroom etc.
    Lastly, when in the process of an appraisal, the value is way off, by $10k-$25k or more and you ask what they used for the ‘CMA’ they usually have nothing and end up scrambling for sales that ‘make the deal work’ no matter how far away, sales that have nothing in common with subject, different school district, custom construction for a spec home, even different towns, when adequate local sales are available.
    This could go on and on, many Realtors around here do understand the process but then there are quite a few bullies (and it only takes a few) who exploit and push to inflate the market.
    I give thanks to the VA, who is the only entity today that truly allows appraiser independence, who also by the way, has the lowest percentage of foreclosures and
    Veterans who are ‘under water’ on their mortgages.
    Very good article, well put. Thank you

  10. Agnes Tabor

    These are indeed all valid points. When recently talking to a home owner with regard to listing and marketing their home here in Naples; one question I asked was, what do think of the value of your home? I was familiar with the homes and community prior to my appointment so when the owners gave me their number I took the time to explain the appraisal process for their home. One point I wanted them to understand was the appraisal process and the fact that any updates or renovations should be documented for the appraisal to be true to their particular home. A buyer making an offer is not always the bottom line, if the appraisal comes in lower than the contract price the lender is only going to give loan at 80% of that appraised value, leaving the buyer to produce more money than they anticipated !!!!

  11. I specialize in green properties. The Appraisal Institute has a new form for green and energy efficient properties: http://www.appraisalinstitute.org/education/green_energy_addendum.aspx
    On a recent transaction I insisted the seller (a builder) fill this out. The Appraiser had never used one before either. After a lot of hassle with no one else being aware of this form, the appraiser upped the value by 7% and the deal came together. I believe in green and the best way to further the cause is by showing tangible value. Kudos to the Appraiser for having an open mind and researching what was a newer field for him.

  12. Great article!
    However, it’s the appraiser’s ROLE,
    not “roll” as you mentioned.

  13. This is an excellent article. With prices rising so quickly in our area, it’s important to have good documentation for the appraiser of upgrades and features that could be overlooked. I like to make it as easy as possible.

  14. Great tips it’s very helpful and useful thanks for the tips for brokers to help the appraisal process.and i hope you share more tips for that.

  15. I am also a real estate broker and as a broker I really appreciate your work!!!!! Your article is excellent.

  16. Thank you for providing tips for brokers/agents. I will follow all of these to make my client satisfied.

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