Comparables (a.k.a. comps), adjustments, appraiser’s estimate of value – OH MY!
What is an appraisal?
The Uniform Residential Apprisal Report often referred to as an appraisal provides an estimate of your home’s value. It provides a professional appraiser’s opinion of what he/she thinks your home may be worth. An appraisal must comply with the Uniform Standards of Professional Appraisal Practice and all regulatory requirements. Raleigh mortgage lenders base your home loan amount on the lesser of the appraised value or the purchase price.
What are the keywords to know in Uniform Residential Apprisal Report?
Subject Property – the real estate being appraised
Comparable Sales – similar properties located in the Subject Property market area
Adjustments – a line-item addition/subtraction from the value of a Comparable Sale
How does an appraiser determine a value?
Appraisers are usually required by the lending guidelines to compare your home with similar homes that have sold within the past 6 months. The appraiser then makes adjustments based on the differences in comparable sales. For illustration ONLY:
Your Purchase Price: Let’s say you sign a contract to purchase a home for $800,000. Oh by the way, the home you are purchasing is the Subject Property.
Comparable Sale # 1 sold for $730,000: However, it doesn’t have a finished basement compared to Subject Property which does. So, the appraiser adjusts the sales price up by $80,000 to $810,000. This means the appraiser thinks Comparable Sale # 1 could have sold for $810,000 if it was more like the Subject Property.
Comparable Sale # 2 sold for $720,000: However, it only has a 1-car garage, compared to the Subject Property which has a 2-car garage. So, the appraiser adjusts the sales price up by $60,000 to $780,000. This means the appraiser thinks Comparable Sale # 2 could have sold for $780,000 if it was more like the Subject Property.
Comparable Sale # 3 sold for $800,000: However, it’s a little larger than the Subject Property. So, the appraiser adjusts the sales price down by $20,000 to $780,000. This means the appraiser thinks Comparable Sale # 3 could have sold for $780,000 if it was more like the Subject Property.
Reconciliation (a.k.a. Appriaser’s Opinion of Value): In this example, the appraiser’s opinion is the Subject Property is worth $790,000 based on the Comparable Sales and all the Adjustments outlined above.
What if you disagree with the Appriaser’s Opinion of Value?
Everyone is entitled opinion of value however the mortgage guidelines require the loan amount to be based on the LESSER of the appraised value or the purchase price. If the value comes in lower that expected one can appeal the appraisal. Acceptance of an appeal does not mean the opinion of value will or ill not change. For an appeal request to be accepted, one must provide a written statement along with alternative Comparable Sales.
NMLS 1591485 | Senior Mortgage Strategist
NMLS 143962 | Certified Mortgage Advisor