Best Practices for Reading Appraisal Reports

Ever read your home’s appraisal report? A riveting document it’s not — unless you know what you’re looking for. This report is not only the appraiser’s opinion of your home’s value, it includes all of the factors the appraiser used to come up with that number. Here’s how to read it.

How to Skim Your Appraisal

First things first — get your hands on a copy of the report. You may have to request one from the lender, who will then have 30 days to provide it. Once you have it, the first thing to check is the property address. Confirm that this is correct, including the ZIP and county. If not, bring it to the attention of your real estate agent immediately.

Take a minute to review the property description under the “Improvements” section. It’s a good way to see how well your appraiser got to know your property. Make sure that any sections the appraiser completed are accurate, and that things like specialty appliances, energy-efficient items, special amenities, and recent renovations are documented. Take a quick look at the “Neighborhood” section as well, to see whether your appraiser accurately identified trends in the area.

This page is also where any necessary repairs will be noted. If anything seems off, bring it up to your agent.

On pages two and six, you’ll find the value at which your home appraised. On page two, it’s under a section titled “Reconciliation Section.” You’ll see the same total on page six, after a line that reads “Appraised Value of Subject Property.” Make sure both numbers match, and that the date of the appraisal is also correct.

Step two is figuring out how the appraiser arrived at that number. Your appraiser can calculate the value of your home in three different ways:

  • Comparable sales. Taking up most of page two, comparable sales is the most common method of determine home value. It uses data from similar recent home sales in your area to pinpoint the value of your property. Pay close attention to the date of sale, comparability and location. Ideally, the comp was sold as recently as possible, is very similar to your property, and situated in a similar location. Check the “Net Adjustment Total” to see whether the appraiser made any adjustment to the price of your property based on the comps.
  • Cost approach. Unique or new construction properties are often appraised with this method, when they just aren’t useful comps. The appraiser will consider what it would cost to replicate the property and what it would cost to recreate with new materials and methods of design. While it’s not as reliable as comparable sales, it’s still used in specific scenarios. Details are found on page three.
  • Income approach. Right below the cost approach section is the income approach, which is only used if the seller rents or leases the property to generate income. Then, expenses are subtracted from the net income to calculate a net operating income, or capitalization rate, to determine the property’s value.

On page six, you’ll learn more about what the appraiser actually did on your property, and whether it was viewed from the street only.

Found an Issue on the Report?

This is a trickier problem to fix than you might think. If you’re looking at an appraisal for a purchase on a home, so long as the report comes in at your contract price, it’s generally not worth the time and effort to flag any errors — which happen more often than you might think. If for some reason the appraisal does not come in at a value that works for your purposes, you can notify your lender to the errors and in some cases the report will be amended, or a new appraisal can be ordered.

Have more questions about buying or selling in Reno or San Francisco? I’d love to help.

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