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Why Appraisals Matter

A home appraisal is a critical step in the mortgage process, providing an unbiased estimate of a property’s market value. Lenders rely on this valuation to ensure the loan amount is supported by collateral.

Since the Dodd-Frank Act of 2010 was signed into law, appraisal independence has been required. Mortgage brokers, loan originators, and lenders are prohibited from influencing the appraiser. Instead, appraisals are ordered through Appraisal Management Companies (AMCs)—independent third parties that assign appraisers from their approved panels. This protects consumers and ensures compliance with Appraiser Independence Requirements (AIR) under the Truth in Lending Act (TILA).

What Buyers Can Do

• Request local expertise: Ask for an appraiser from your county or a neighboring county.
• Check credentials: Request an appraiser with a professional designation such as SRA (Senior Residential Appraiser) or MAI (Member of the Appraisal Institute).
• Provide context: Share knowledge of short sales, distressed properties, or unusual circumstances that could skew values.
• Communicate professionally: Buyers, sellers, and Realtors® may still provide factual data—such as comps or upgrades—to the appraiser.

What Sellers Can Do

• Hire an independent appraiser: Consider engaging an Appraisal Institute member within your county.
• Provide documentation: Share copies of prior appraisals or improvements with the buyer’s appraiser.
• Challenge low valuations: There is a formal process through the AMC to dispute low appraisals with additional comparables.

Property Inspection: Preparing Your Home

Appraisers conduct an on-site inspection reviewing the:

• Exterior: Lot size, curb appeal, and condition.
• Interior: Bedrooms, bathrooms, square footage, layout, and updates.
• Improvements: Renovations, safety items, and system functionality.

Preparation Tips

• Fix health & safety issues first (loose railings, broken windows, exposed wiring). Ensure smoke and carbon monoxide detectors are functional.
• Make sure all utilities are on and working (plumbing, electrical, HVAC).
• Tidy up clutter—presentation can influence perceived condition.
• Maintain landscaping: mow lawns, trim hedges, and clear obstructions.
• Document renovations: provide dates, costs, and contractor details.
• Avoid over-improving: neighborhood values set the ceiling.
• Share comps: You can provide the appraiser with similar property data. If a neighbor sold under distress (divorce, foreclosure, concessions), explain so it doesn’t unfairly impact your home’s valuation.

Valuation Approaches Used

• Sales Comparison Approach (most common): Compares the home to recently sold similar properties within 6–12 months.
• Cost Approach: Estimates replacement cost, used less in residential lending.
• Income Approach: Evaluates rental income potential, used for investment properties.

Factors That Influence Value

• Market conditions: Local demand and housing supply.
• Condition: Deferred maintenance reduces value.
• Location: Nearby amenities or nuisances (highways, rail lines).
• Upgrades: Renovations may help, but not all improvements return full value.

The Appraisal Report & Review

Most single-family homes use the Uniform Residential Appraisal Report (URAR, Form 1004). Key sections include:

• Property & neighborhood description.
• Comparable sales grid with adjustments.
• Final reconciled value.

Lenders review the report to ensure it meets underwriting requirements. If concerns arise, a Reconsideration of Value (ROV) may be submitted with stronger comparable sales.

Common Appraisal Challenges

• Low appraisals: May require renegotiation, larger down payments, or a dispute process.
• Unique properties: Rural or custom homes may lack sufficient comps.
• Appraisal disputes: If errors aren’t corrected, escalate to the lender or the state appraisal board.

Questions? Call (206) 393-0684