Appraisal

An appraisal is a document that estimates the property's fair market value. An appraisal is generally required by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property. Appraisals are performed by an "appraiser" who is usually a state-licensed individual trained to deliver expert estimates of the property’s value. In an appraisal, consideration is given to the property, its location, amenities as well as its physical conditions.

Appraisal Methods

Three approaches are used when establishing the value of a given property:

1. Cost Approach: This formula is used to arrive at a property’s value: Value of the land (vacant), added to the cost to reconstruct the appraised building as new on the date of value, less accrued depreciation the building suffers in comparison with a new building.

2. Sales Comparison Approach: In this formula the appraiser identifies 3-4 comparable properties in the neighborhood which have recently been sold and are close in the vicinity of the subject property. The appraiser then compares the sold square footage, number of bedrooms and bathrooms, property age, lot size, view, and property condition to the property being sold.

3. Income Approach: In this formula the potential net income of the property is capitalized to arrive at a property value. This formula is suited to income-producing properties and is often used in conjunction with other valuation methods.

In most cases, a borrower can change mortgage companies without having to pay for another appraisal. The first lender can transfer the appraisal to the new lender. Some appraisal firms may charge a small fee, however, because there is clerical work involved in editing the appraisal to reflect the new mortgage company. This fee is called an "Appraisal Retype Fee." The original mortgage company has the right to refuse to transfer of the appraisal to another lender. In this event, a new appraisal will be necessary.