Frequently Asked Questions
The Appraiser Got My Square Footage & Room Counts Wrong The home owner’s number one concern when reading the typical appraisal report is that the appraiser got the square footage and room counts wrong. Per appraisal standards the GLA (gross living area) is the square footage above grade only and is the same for room count; therefore, appraisers and real estate agents report square footage and room count differently. Appraisers account for the basement basically as an amenity similar to a deck or porch. Here in Minnesota it is typically finished with rooms and living areas. Agents count square footage and rooms for the whole house including the basement. Per appraisal standards we calculate and report it as full and finished or unfinished, and full appraisal will give a percentage number finished which includes the room count below grade regardless of it’s make up. The reason for this is that most homes in the USA do not have basements, so the appraisal reports standardize it, or make it uniform, so that the underwriters, lenders, and banks have an equal understanding across the US. It's neither here nor there since we account and report the comparable sales the same way as your house, so it compares apples to apples. If I were to report the entire square footage of your house and the comparables then end result would be very similar.
Why is an appraisal necessary? The lender orders the appraisal to obtain an accurate description of the property and an independent and unbiased opinion of value. The lender uses the appraisal to document that the real estate is appropriate collateral and determine whether the value of the property is sufficient to support the lending decision.
Why isn’t the consumer considered to be the client when he or she pays the appraisal fee? Federal banking regulations require the financial institution to be the client, regardless of who pays the fee.
How does the appraiser develop the value opinion? The appraiser researches market data, public records and talks with buyers, sellers and real estate brokers active in the market area. Data researched includes sales, leases, and current listings of similar properties. Other data include land sales and residential construction costs. After all factors affecting the value are considered, the appraiser develops an opinion of value and prepares an appraisal report.
I have heard about problems with appraisers traveling long distances to appraise homes? How far is too far? The issue isn’t so much “distance” or “how far is too far,” rather the question that should be asked, “Is an appraiser from outside of my area competent to appraise my property?” Some appraisers work in many geographic areas and are knowledgeable and competent in all of them.
Other appraisers have a limited range in which they normally appraise and they may not have the data or the experience to be competent outside their local market.
What information should I provide to the appraiser? The more information the appraiser has about your property, the better he or she will be able to develop a credible result. The appraiser will be interested in knowing if there are any private agreements or restrictions, easements or rights of way, encroachments, “agreed to” arrangements with abutters (e.g., fences, walls) on the property, etc. The appraiser may ask about the property’s title, sales and rental history, and occupancy. He or she might ask if the property is under a pending purchase and sales agreement or option and, if so, the details about the agreement or option. If the property sold in the past three years, the appraiser may ask about the details of the transfers. Finally, the appraiser may inquire about physical characteristics of the property, including any additions, permits, etc. If you are hiring the appraiser directly, the appraiser will want to know what the intended use of the appraisal will be. (NOTE: If you are engaging the appraiser to prepare an appraisal for a federally-related transaction, you should know that the lender or the lender’s agent is required to engage the appraiser).
What should the appraiser do when he or she inspects my home? Based on the client’s intended use of the appraisal, the appraiser determines whether an interior and/or exterior inspection or no inspection is required. Under many circumstances, the lender will require a full viewing of the property including an exterior and interior inspection. Assuming that a complete inspection is required, the appraiser inspects the site, site improvements, and building improvements. The appraiser considers the site’s size, shape, topography, drainage, and any other attributes that may affect value. He or she views the site improvements (e.g., paving, fences and walls, landscaping) to determine their contribution of value to the property. Finally, the appraiser inspects any structures. Some of the items considered are building style, number of stories, size, number of rooms (including bedrooms and baths, etc.) He or she observes the structure’s condition as an aid to estimating depreciation. In addition, the appraiser considers the property as a whole, including the dwelling 12 A Guide to Understanding a Residential Appraisal and any other improvements as well as any visible encumbrances (e.g. power lines, encroachments). Finally, the appraiser considers the property in relation to the neighborhood. An appraiser’s inspection and a home inspection are different. An appraiser gathers information to develop a value opinion and a home inspector gathers information to identify construction features, structural integrity and any needed repairs.
Why does an appraiser make “adjustments”? In developing an opinion of the value of a property, an appraiser considers recent sales of similar properties. Generally speaking, the sales that are the most similar to the property being appraised are the best indicators of value. However, since rarely are two properties exactly the same, the appraiser must account for differences between the property that sold and the property being appraised. These differences are called “adjustments.” Adjustments are added or subtracted from the sale prices of the comparables to indicated an adjusted sale price for the property being appraised.
What elements should a credible appraisal include?
• A clear, accurate description of the subject property
• Sales that are the most recent and most comparable
• Comments that explain important issues in the appraisal
• An opinion of value supported by the analysis of the comparable sales
What should I do if I believe a correction is needed to the appraisal report? First, write a letter or email to the lender describing the problem and provide any evidence you have. For example, if the appraisal has an incorrect living area size for the subject property, provide factual evidence which supports your position. If you believe the appraiser selected comparables that were not the most comparable, submit a list of the comparables you would like him or her to consider. The lender will provide this information to the appraiser and request the appraiser to consider what’s been submitted.
After asking for a reconsideration of value, the appraisal remains flawed. What are my options? You may request the lender order an appraisal review assignment or to order a second appraisal (keep in mind the lender is not required to do either). An appraisal review is completed by a different appraiser who will verify the facts and data in the appraisal, search for additional comparables and provide a conclusion as to whether the comparables used in the appraisal are the most comparable. If the review appraiser does not agree with the opinion of value in the original appraisal, he or she will complete a sales comparison approach and provide his or her own opinion of value.
The appraisal I am reading has codes describing elements such as condition, construction quality and location. How do I find out what they mean? At the request of the lender/client, the appraisal report may be prepared in compliance with the Uniform Appraisal Dataset (UAD) developed by Fannie Mae and Freddie Mac. The UAD requires the appraiser to use standardized responses that include specific formats, definitions, abbreviations, and acronyms. Look through the appraisal for the UAD Definitions Addendum. In most cases, the addendum will be in the appraisal. If not, either request it from the lender or access it online at https://www.efanniemae.com/sf/lqi/umdp/pdf/ uadappendixdfieldreqs.pdf pages 34 through 37.