Appraisal FAQs

Who selects the appraiser?

New rules known as the "Home Valuation Code of Conduct" intended to enhance the integrity of the home appraisal process, curtail appraisal fraud and undue influence on appraisers and improve the reliability of appraisals require that lenders order appraisals either directly from individual appraisers or through appraisal management companies. The lender's employees that are tasked with ordering appraisals cannot be members of lenders' loan production staff. Mortgage brokers and real estate agents are prohibited from selecting the appraiser.

What will the appraiser do?

  • Perform a complete visual inspection of the accessible interior and exterior areas of the property.
  • Consider all factors that have an impact on value when developing his/her opinion of the market value of the property.
  • Inspect the neighborhood.
  • Inspect each of the comparable sales from at least the street.
  • Research, verify and analyze data from reliable public and/or private sources.
  • Report his/her analysis, opinions and conclusions in the appraisal report.

What information will the appraisal report contain?

  • Details about the property such as age, size, number of bedrooms and bathrooms.
  • A description and rating of the overall quality and condition of the property.
  • A description of any physical deficiencies or adverse conditions that could affect the safety, soundness or structural integrity of the property. These may include cracks or settlement in the foundation, water seepage, active roof leaks, curled or cupped roof shingles, inadequate electrical service or plumbing fixtures and environmental hazards.
  • A description of items that require immediate repair as well as items where maintenance may have been deferred, which may or may not require immediate repair.
  • A value analysis of the property using the sales comparison approach.
  • A value analysis of the property using the cost approach (if required).
  • An opinion as to the market value of the property.
  • Market conditions in the neighborhood of the subject property such as the trend of property values (whether increasing, stable or declining), the supply of properties (whether shortage, in balance or over supply) and marketing time.
  • A street map that shows the location of the property and of all comparables that were used.
  • An exterior building sketch of the improvements that indicates the dimensions. A floor plan sketch that indicates the dimensions is required instead of the exterior building sketch if the floor plan is atypical or functionally obsolete, thus limiting the market appeal for the property in comparison to competitive properties in the neighborhood.
  • Interior photographs and exterior photographs that show the front, back, and a street scene of the property.
  • Photographs that show the front of each comparable sale.

What is Market Value?

"Market Value" is defined as "the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus."

What are the standardized ratings for property condition?

There are 6 property condition ratings ranging from C1 (best) to C6 (worst):

The improvements have been very recently constructed and have not previously been occupied. The entire structure and all components are new and the dwelling features no physical depreciation.

The improvements feature no deferred maintenance, little or no physical depreciation, and require no repairs. Virtually all building components are new or have been recently repaired, refinished, or rehabilitated. All outdated components and finishes have been updated and/or replaced with components that meet current standards. Dwellings in this category either are almost new or have been recently completely renovated and are similar in condition to new construction.

The improvements are well maintained and feature limited physical depreciation due to normal wear and tear. Some components, but not every major building component, may be updated or recently rehabilitated. The structure has been well maintained.

The improvements feature some minor deferred maintenance and physical deterioration due to normal wear and tear. The dwelling has been adequately maintained and requires only minimal repairs to building components/mechanical systems and cosmetic repairs. All major building components have been adequately maintained and are functionally adequate.

The improvements feature obvious deferred maintenance and are in need of some significant repairs. Some building components need repairs, rehabilitation, or updating. The functional utility and overall livability is somewhat diminished due to condition, but the dwelling remains useable and functional as a residence.

The improvements have substantial damage or deferred maintenance with deficiencies or defects that are severe enough to affect the safety, soundness, or structural integrity of the improvements. The improvements are in need of substantial repairs and rehabilitation, including many or most major components.

What are the standardized ratings for the quality of construction?

There are 6 quality condition ratings ranging from Q1 (best) to Q6 (worst):

Dwellings with this quality rating are usually unique structures that are individually designed by an architect for a specified user. Such residences typically are constructed from detailed architectural plans and specifications and feature an exceptionally high level of workmanship and exceptionally high-grade materials throughout the interior and exterior of the structure. The design features exceptionally high-quality exterior refinements and ornamentation, and exceptionally high-quality interior refinements. The workmanship, materials, and finishes throughout the dwelling are of exceptionally high quality.

Dwellings with this quality rating are often custom designed for construction on an individual property owner’s site. However, dwellings in this quality grade are also found in high-quality tract developments featuring residences constructed from individual plans or from highly modified or upgraded plans. The design features detailed, high-quality exterior ornamentation, high-quality interior refinements, and detail. The workmanship, materials, and finishes throughout the dwelling are generally of high or very high quality.

Dwellings with this quality rating are residences of higher quality built from individual or readily available designer plans in above-standard residential tract developments or on an individual property owner’s site. The design includes significant exterior ornamentation and interiors that are well finished. The workmanship exceeds acceptable standards and many materials and finishes throughout the dwelling have been upgraded from “stock” standards.

Dwellings with this quality rating meet or exceed the requirements of applicable building codes. Standard or modified standard building plans are utilized and the design includes adequate fenestration and some exterior ornamentation and interior refinements. Materials, workmanship, finish, and equipment are of stock or builder grade and may feature some upgrades.

Dwellings with this quality rating feature economy of construction and basic functionality as main considerations. Such dwellings feature a plain design using readily available or basic floor plans featuring minimal fenestration and basic finishes with minimal exterior ornamentation and limited interior detail. These dwellings meet minimum building codes and are constructed with inexpensive, stock materials with limited refinements and upgrades.

Dwellings with this quality rating are of basic quality and lower cost; some may not be suitable for year-round occupancy. Such dwellings are often built with simple plans or without plans, often utilizing the lowest quality building materials. Such dwellings are often built or expanded by persons who are professionally unskilled or possess only minimal construction skills. Electrical, plumbing, and other mechanical systems and equipment may be minimal or non-existent. Older dwellings may feature one or more substandard or non-conforming additions to the original structure.

What are the standard ratings for the bathroom and kitchen areas of the home?

In addition to giving the property an overall condition rating and quality rating, the appraiser will need to identify the level of updating, if any, that the bathroom and kitchen areas of the home have received by utilizing the following definitions.

  • Not Updated. Little or no updating or modernization. This description includes new homes. Residential properties that are not more than 15 years old often reflect an original condition with no updating. Those over 15 years old are considered not updated if the appliances, fixtures and finishes are predominantly dated.
  • Updated. The area of the home has been modified to meet current market expectations. These modifications are limited in terms of both scope and cost. An updated area of the home should have an improved look and feel or functional utility. Updates do not include significant alterations to the existing structure.
  • Remodeled. Significant finish and/or structural changes have been made that increase utility and appeal. A remodeled area reflects fundamental changes that include multiple alterations. These alterations may include replacement of cabinets, bathtubs or bathroom tiles, relocation of plumbing structures, relocation of walls, addition of square footage or complete gutting and rebuild.

What is the sales comparison approach?

The sales comparison approach is a property valuation method. Recent sales of comparable properties that are the most similar in location and physical characteristics are selected and adjustments are made to the sales price of each comparable property to more accurately reflect the features of the subject property. Prices are adjusted upward if the subject property has superior characteristics and downward if the opposite applies. The appraiser adds to the sales price of the comparable property the value of any feature that is present in the subject property but not in the comparable property. The appraiser subtracts from the sales price of the comparable property the value of any feature that is present in the comparable property but not in the subject property. Price adjustments can also be made for other factors such as financing or sale concessions or if the comparable sale is more than 6 months old. The appraiser's final step is to analyze the resulting figures after all adjustments are made to the sales price of the comparable properties and choose the one that best represents the value of the subject property.

What are appropriate comparable sales?

A minimum of 3 comparable closed sales must be used in the sales comparison approach. Additional comparable closed sales, pending sales and current listings can be used by the appraiser to support his or her opinion of market value. The comparable sales should preferably be located in the same neighborhood as the subject property and should be similar in square footage, age of construction, amenities, upgrades and condition. Comparable sales that are not more than 6 months old are preferred but comparable sales that have closed within the last 12 months can be used. If the appraiser uses a comparable sale that is more than 6 months old, the appraiser must include an explanation in the appraisal report for its use. Comparable sales that are the best indicator of value for the subject property but that are more than 12 months old can be used, if appropriate.

What Is an "as-is" appraisal?

An "as-is" appraisal evaluates the market value of the property in its "as-is" condition. An "as-is" appraisal is permitted by Fannie Mae as long as the existing conditions are minor, such as deferred maintenance, and do not affect the safety, soundness or structural integrity of the property and the appraiser's opinion of value reflects the existence of these conditions. Minor conditions and deferred maintenance are typically due to normal wear and tear from the aging process and the occupancy of the property. Such conditions generally do not rise to the level of a required repair but must, nevertheless, be reported. Examples of minor conditions and deferred maintenance include worn floor finishes or carpet, minor plumbing leaks, holes in window screens or cracked window glass.

What is an "as repaired" appraisal?

When there are incomplete items or conditions that affect the safety, soundness, or structural integrity of the property such as a partially completed addition or renovation, cracks or settlement in the foundation, water seepage, active roof leaks, curled or cupped roof shingles or inadequate electrical service or plumbing fixtures, the appraiser will do an "as repaired" appraisal of the property meaning that the appraiser's opinion of value assumes that all repairs required to remedy these items and conditions will have been completed. These required repairs must actually be completed and the appraiser must certify to their completion before the loan transaction can close. FHA loans have more stringent property condition standards than conventional loans. Certain items which are required repairs with an FHA loan such as peeling paint if the home was built before 1978 are not repairs that would be required with a conventional loan. Because required repairs must be completed before the close of escrow, they are disfavored by sellers and buyers alike.