Lender Resource Series: How to Prepare your Borrower for the Appraisal Process

With the exception of the pile of legal documents required for closing, appraisal inspections and reporting can be one of the more confusing areas of the refinance or purchase of a home.

Being in this business for over 20 years and spending the first half of my appraisal career out in the field, I have come to realize many borrowers, sellers, agents, and even some loan officers are not familiar with the overall evaluation and appraisal process. Looking from the outside in, many people tend to think it is just about the appraiser showing up to take some photos, measure a few walls, and then out the door they go. But there’s so much more to an appraisal than that.

Your borrower is approved for their loan, documents are signed, and the appraisal has been ordered. What should you advise your borrowers to expect? Here’s information that you’re welcome to share with your borrower.

The appraiser will be taking pictures of what seems like everything! If there are items the appraiser considers to affect the value of the home - good or bad - they will need a picture for support and to include in their work file.

On the way to the appraisal appointment, the appraiser will be looking at the homes and amenities in the area while driving to the property. They are looking for obsolescence that could affect the area in general, i.e., the subdivision has a train track running along the back, there is a power station across the street, etc.

Also, along the way, they are taking photos of the comparable sales they deem to be like that of the subject property (the home being appraised).

Once they arrive at the home, they will take exterior photos of the property, trying to get all four sides and at least one direction of the street. Additionally, they will take photos of any exterior amenities, such as a pool, a shed, a view, etc.

While the appraiser is working around the exterior of the property, they will also use a measuring device to determine the square footage (the GLA, or gross living area) of the home. Almost all properties are determined by exterior measurements to arrive at the square footage. They will also take measurements of any decks, patios, detached garages, etc. - anything that affects the estimated value.

Upon completion of the exterior, the appraiser will then need to access the interior of the home. The appraiser is looking for a number of things. They are viewing the floor plan, maintenance, updates/upgrades, as well as any possible interior obsolescence and/or amenities. They will be sketching out the layout of the rooms, noting the floor coverings and their condition, as well as the overall condition of the home, bathroom, and kitchen finishings.

The appraiser will be looking inside closets, flipping on lights, and taking additional interior measurements if needed. If the living room is two stories, they will take measurements to back out the “upstairs area” from the overall square footage of the home. This is also done with a two-story foyer if it’s large enough. They’ll sketch out areas of a “bonus” room above a garage. And if there is a basement, the appraiser will take measurements of the finished area.

By the way, appraisers don’t care if you have dishes in the sink, haven’t dusted yet that day, or have clothes in a basket in the laundry room. As long as your home has been maintained, a lack of general housekeeping will not count against the estimated value of your home.

Typically, once the exterior and interior inspections have been completed, before the appraiser leaves the home, they will ask various questions like “What improvements/updates/upgrades have you made since owning the property?”, “Is there anything I should take into account that I may not have seen?”, “When did you upgrade XXX?”. (Please note, designer paint, new hinges, new cabinet knobs/drawer pulls, new doorknobs, new ceiling fans and replacement of similar items is not necessarily considered an upgrade. These items may be considered “maintenance” - things that are needed over the course of the life of the home.) If the borrower has done any major renovations, have them create a list of updates/upgrades prior to the inspection so they remember to share everything. They can print this out and provide it to the appraiser at the appointment.

Important: The appraiser will not have the estimate of the value of the home at the time of the inspection. The evaluation process is not complete yet.

Now that the appraiser has seen the property, they will have a better idea of which of the comparable sales they had researched previously are most similar to the property and therefore best to use to determine the value. The appraiser will make another trip through the market area as they leave the property, and they may visit additional comparable sales on the way to their next appointment or back to the office.

The real work now begins.

The appraiser has compiled a work file. The work file will contain the inspection information, research of the market area, and comparable sales. The work file will also have information regarding the updates/upgrades of the home if applicable, and previous sales of the home or previous listings of the property.

The appraiser will carve out time to work specifically on this particular appraisal report. It may be all in one day or they may work on the file a few hours for several different days. The actual typing of the appraisal report will take approximately 8-12 hours depending on the complexity of the assignment, the available comparable sales, readily available information needed, etc.

Once all the comparable sales have been chosen, necessary adjustments made and final comments added, the appraiser will review the data and provide the final estimate of value for the home. The determination of value is one of the last items completed just before they sign the report and send it over. So, although the appraiser was only at the property for 20-30+ minutes, the entire process of the appraisal report can take several days to complete. The appraiser’s due diligence in the process in person may seem limited; however, the overall process is quite time-consuming.

All these factors play into your appraisal fee, turn time and final estimate of value. A credible report takes time.

(Some of the above steps may be slightly different depending on the appraiser and/or the property type. Depending on the loan type, a more extensive inspection of the home may be required.)

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