Mortgage Blog

What is a real estate appraisal?

Appraisals, assessments and valuations are often confusing terms for consumers when they are financing their existing home or they are purchasing a home for the first time. While some may think these terms are interchangeable, they are extremely different in terms of what they mean legally.

An assessment is the value that a municipality places on a piece of real property. This is the amount that they base tax payments for a property in their jurisdiction. This amount is sometimes more than the real value of the property and is often based on the “overall” value of properties in a neighborhood, the condition of the home and any additions to the property including garages, storage areas or other fixed structures.  In most cases, an assessment is done on the external features of a property with minor consideration given to square footage inside the home.


Property valuations are typically done by a real estate broker to determine the fair market value of a property. This valuation is often provided to a homeowner when they are considering listing their home for sale. This valuation seldom includes any information about the inside of the home except for the number of bedrooms, sq footage,bathrooms and overall room count.  Real estate agents use the most recent sales in the neighborhood and compare those sales against the property to arrive at a value. The real estate industy calls is valuation a comparitive market analysis. (CMA)

A real estate appraisal is required for all home purchases, and in most cases each time a home is refinanced if a lender is needed. A real estate appraisal is done by a licensed professional and will include some of the following considerations:

  • Overall home condition – a real estate appraisal will take into consideration the overall condition of the home, inside and out. The appraiser will come in and walk through the home and check how modern the kitchen and bath is, note any deficiencies (such as damp basements, etc.) and also complete a visual inspection of certain features such as the roof, to make their final determination.
  • Recent home sales – a real estate appraiser will search through the most recent home sales in the area and compare them against the property they are performing the appraisal on. This process involves adding and subtracting specific items such as whether or not the home has the same number of rooms, if the land is the same square footage, and other feature such as modern fixtures, new roof, etc. Closed sales within six months and within one mile radius of the subject property is ideal.
  • Rental income – when a real estate appraiser is valuing a home that is rented, they may also ask the owner to provide them with rent schedules that may also be considered in their final appraisal report.  The appraisal will need to have operating income and comparative rent schedule completed if the home owner is using rental income to qualify for the mortgage financing.


What isn’t considered

When a real estate appraiser is evaluating the value of a home, they do not take into consideration things they are not qualified for such as whether or not the home has a pest infestation. Unless the real estate appraiser sees definite signs of an infestation, this is not something they are qualified to address.

Real estate appraisers are highly-trained professionals who must be licensed in order to properly value a home. The amount of value they place on the home is key to securing a mortgage loan and also to determining how much you should be paying for a home.  To avoid potential conflicts of interest, most lenders work through a third-party. These third party companies are called  appraisal management companies (AMC). The AMC selects the appraiser from their database to complete the property appraisal. A typical home appraisal can cost between $375 and $500.  Certain factors including whether the property is rented or owner occupied may also increase these costs.


Disclaimer: This blog is for informational purposes only. Our blog is a matter of opinion about real estate appraisals. We are not licensed realtors, appraisers, tax assessor’s or attorneys. Please contact your local county property appraiser, appraiser, lender for more information. NMLS #1743702


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