The appraiser is an employee of the bank or mortgage company, or is contracted by the lender to appraise the property.  The cost of the appraisal for most homes is about $375.00, and it is a required cost of closing on financed purchases.

 Mortgage loans are based on a percentage of the property value.  For instance, if the loan is approved at  80% LTV (loan to value), on a house valued at $300,000 the amount of the loan is $240,000.  The buyer is qualified for a loan to value based on income and credit.  The higher the LTV, the higher the lender’s risk, for instance, a 100% LTV is a higher risk for foreclosure, since the buyer has not invested anything in the property.

 For most residential properties, the appraiser will use the “Comparison Approach”  researching similar homes which have closed in the last 90 days within a two mile radius of the subject property.  If no similar homes have sold in the same neighborhood, the appraiser may use comparables from other neighborhoods.  However, if there are recent sales of similar homes in the neighborhood, they must be included.

 Some of the features that will be compared:

• Square Footage
• Construction (brick, frame, stucco)
• Number of Bedrooms On Main Level or Second Level
• Number of Full Baths
• Number of Half Baths
• Formal Living Room
• Formal Dining Room
• Family Room
• Fireplace
• Garage/Carport
• Basement, Crawl Space, Slab
• Screened Porch, Sun Room
• Size and Desirability of Lot
• Septic/Sewer

Since no two properties are identical, the value is adjusted for features that one property has and the other does not.

 An appraisal is only good for a short time, because market conditions may change.  In most residential areas, land appreciates and buildings depreciate.  Additional finished space, such as a four-season sunroom or finished basement, will add value.  However, keep in mind that the appraiser will not give as much weight to finished space "below grade" as he/she will to living space on the main levels of the home.  Many renovations require permitting, and if your tax record does not reflect a new assessment which includes the newly finished space, it may affect your appraisal.

 Normal maintenance, such as needed repairs, painting, replacement of roof, plumbing or heating and air conditioning, is not considered “improvement” and does not add to the value of the property.  However, deferred maintenance may subtract from the market value of a property.

 Keep a record of money spent on major renovations, such as new kitchen countertops, floors, appliances, new bath fixtures, hardwood floors, carpeting, add living space.  This information should be available to the appraiser, who may combine the “cost approach” with the “comparison approach” if there are few comparables.