Appraisal Process

How the Appraisal Works

After a purchase agreement is executed or a refinance application is submitted, the lender orders an appraisal through an appraisal management company (AMC) or directly from a licensed appraiser. The appraiser conducts a physical inspection of the property, measuring the living area, documenting the condition and features, and photographing the interior and exterior. The appraiser then researches recent comparable sales in the area, typically selecting that sold within the prior and within a reasonable distance.

Valuation Methods

Residential appraisals primarily use the sales comparison approach, which adjusts comparable sale prices for differences in features, condition, location, and size relative to the subject property. The cost approach and income approach may supplement the analysis for new construction or investment properties. The appraiser delivers a written report, most commonly on the Uniform Residential Appraisal Report (URAR/Form 1004), within of the inspection. Appraisal fees typically range from for a standard single-family property.

Low Appraisals and Recourse

If the appraisal comes in below the purchase price, the buyer has several options: negotiate a lower price with the seller, cover the difference in cash, request a reconsideration of value by providing additional comparable sales data, or cancel the transaction if an appraisal contingency is in place. Under the Dodd-Frank Act and appraiser independence requirements, lenders and loan officers are prohibited from influencing the appraiser's valuation. The borrower has a right to receive a copy of the appraisal report at least before closing.