Home Appraisals Made Stupid Simple

Anyone with a functioning brain and a WiFi connection can learn basic Spanish phrases within a week. Si?

Same said person, however, stands no chance – none whatsoever – of navigating the nefarious labyrinth of argot known as finance. Finance is its own language, and it makes Spanish look easier than the ABC’s.

Thankfully, there’s me.

Disclaimer: I am not a lawyer. I am not an appraiser. No exorbitantly rich person is housing me in an expensive Hilton hotel room so I’ll endorse their product. I do, however, enjoy Panera Bread baguettes, for what it’s worth.

Today’s translation and topic is the word, “appraisal.”

Defined by the financial oligarchy, e.g., Southern California Appraisal, an appraisal is “the process of estimating the value of specific property at a stated time and place. While anyone can make an informal estimate of value, the formal appraisal is supportable based on the facts and data presented and the methods used.”

What does that actually mean?

My brain: “Retreat! Get to da choppa!”

Why are financial terms so complicated? Some believe that there is an international conspiracy keeping the common people in chaos to support the interests of the wealthy. Yet in truth, finance can be understood and applied by anyone. All it takes is a computer connection, me, and a little thinking.

What is an appraisal?

Technical definition: An appraisal is an evaluation of the immediate market value of real property.


Understandable definition: An appraisal tells the owner how much everyone else thinks his home is worth. It slaps a price tag on a person’s property.

According to the National Mortgage Alliance, there are three basic types of appraisals.

Cost approach: Also known as a summation approach, a cost approach totals the sum value of a property. It adds two things: the value of the land, and the value of the attached property including the cost of improvements, such as labor and materials. This approach is often used before constructing or renovating property.

Comparison approach: This is the type of appraisal most often used for the home mortgage approval process. In a comparison approach, the evaluated property is compared to other properties in the area (read: Keeping up with the Jones). These other properties are informally known as “comps.” The appraised property is similar to the “comps” in square footage, lawn size and amenities, such as a fireplace, pool, two-car garage, etc. The theory goes that if the other homes sold for $300,000, then the appraised home should sell for about the same price.

Income approach: Often used to evaluate commercial and investment properties, an income approach determines the value of property based its produced income. A rented duplex, for instance, provides income via rent, and an income approach could be used to estimate its value.

THIS IS AN IMPORTANT PUBLIC SERVICE ANNOUNCEMENT: An appraisal is not the same thing as an inspection! An inspection points out problem areas in the property – sagging walls, a flooding basement, termite nests, etc. It does not estimate the property’s market value.

Whew – the mental gears are spinning now! Let’s recapitulate. An appraisal creates a price tag, one that other people generally trust. Depending on the type of property, one of three approaches may be used to determine that price tag. For the home mortgage process, a sales comparison approach is most often used.

What is an appraisal based on?

Contrary to popular myth, grandiloquent Baroque furniture and cozy wall-to-wall carpet have no bearing upon an appraisal. An appraisal evaluates the architecture and the condition of the property – the bones and muscle of the body, as it were – ignoring the decor almost completely. Manicured bushes, general tidiness and cute garden gnomes add not even $10. With that said, crayoned walls, chipped countertops, peeling paint and stained carpeting do matter, cutting off as much as 10 percent of the maximum appraisal value. Five-foot-tall weeds are bad, too.

Rule of thumb: Anything that the owner is eventually going to stuff into the U-Haul does not matter.

So what does factor into an appraisal?

A dank and wet basement, for one thing, and asbestos in the walls for another. Obvious conditions to avoid include cracked foundations, leaky faucets, soiled carpets, broken door handles and cracked paint.

In general, only the permanent structure and fixtures of a property are part of the appraisal equation. These include but are not limited to:

  • Size of home (square footage) and size of lawn (acres).
  • Style and effective age of property.
  • Condition of permanent appliances.
  • Architectural features like winding staircases, kitchen islands, bathtubs, walk-in showers, etc.
  • The overall state of the home’s features such as painted surfaces, tiled floors and lighting fixtures.
  • Quick and dirty secret: Any problem that requires a trip to Lowe’s Home Improvement should probably be fixed.

Who performs the appraisal?

An appraisal is performed by an appraiser who is ostensibly unbiased and omniscient. He or she is licensed through the Division of Commerce. Generally speaking, in a home mortgage situation, the lender – the bank – selects the appraiser and factors in the fee, about $300-$500, into the home’s closing cost. However, the owner of a house may request the bank to use his preferred appraiser, and may even suggest comparable properties.

Note: Even if the appraiser is selected by the bank, he or she does not work for the lending institution! The appraiser is independent. Allegedly.

Once the appraisal is completed, the appraiser prepares a special report which explains the condition of the property and the whys and wherefores of its estimated market value.

Quick and dirty secret: The appraiser may be wrong, so feel free to find a second opinion.

Who needs an appraisal?

Everyone! Appraisals all around!

Sellers need appraisals in order to slap a trustworthy price tag onto a property before putting it on the market. Buyers need appraisals to secure a mortgage rate, because banks use the appraisal values to ensure they are not lending more than the value of the property.