In today’s real estate climate it is imperative to properly understand the valuation process a property goes through. Home valuation tools are readily available to every internet user and usually all that is required is a username and password and some advertising. But the process by which a home is valued is much more than a mathematical algorithm. Home valuation tools are good for a rough estimate and lack the human professional element of understanding “other” factors that comprise a complete appraisal.
Recently I had the opportunity to interview Patrick Lamb, Lamb Hanson Lamb Appraisal Associates, Inc, a Seattle real estate appraisal company, to learn more about the inner workings of certified residential home appraisal.
First the bank contacts a firm and orders the appraisal on the “subject” (subject is the name given to the property to be appraised). Banks typically order the appraisal from a partnered firm and usually do not accept appraisals conducted/submitted by a firm hired by the seller/buyer. This helps eliminate the risk being biased in either in favor of a hire or low value.
Second the appraising firm contacts current owners to schedule an appointment. A typical appraisal can be scheduled within 5 days and should not be delayed. Getting the appraisal ordered as soon as possible makes it easier on the banks and lending institutions. Many different parties are depending on those documents to be timely.
Simultaneously a set of comparable properties are assembled to give the appraiser a idea what similar properties have sold for. Comparables are a list of properties that are similar in bedrooms, bathrooms, square footage and neighborhood. They are then personally reviewed, via a drive by, and are either eliminated or confirmed as legitimate comparables.
Third the property is inspected and the appraiser is going to be looking the three forms of depreciation: physical, functional and external. Some examples are:
Physical: Roof, siding and foundation…”are they structurally sound and avoid of problems?”
Functional: Heating system, staircase…”do these items work or are they in disrepair?”
External: Railroad, condemned buildings…”what is adjacent that could potentially impact the subject’s value?”
Fourth, after all the data is gathered and evaluated then it is compiled into what are called a Uniform Residential Appraisal Report (URAR). The URAR serves as the primarily reporting method for all residential real estate appraisals is reviewable on Fannie Mae’s website and well as Frequently Asked Questions.
Lastly are the fees. A typical appraisal ranges from $200 – $500 but due to special circumstances, rates, duration of the appraisal and travel time the cost varies.
The property valuation process is much more complex than what some online tools make it seem. Being able to adapt the complexity and individual dynamics of a property is a major contributing item the human factor has. As the real estate industry continues to experience its cyclical cycle accompanied by the lending fiasco it is going to be even more important for consumers to have a thorough understand of the appraisal process.
That way the experience of purchasing and/or selling a home is that much more enjoyable. I would like to thank Patrick Lamb for his time and clarifying the residential real estate appraisal process.
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