Appraisals are not only an important part of the home buying process, but part of your inspection and due diligence process. Most Residential Purchase Agreements (RPA) contain one contingency clause for inspection and another contingency clause for appraisal and loan. A professional real estate appraiser provides an opinion of value of real property, which can be land, buildings or any combination, at a given point in time.
The appraisal is also an important part of the home buying process because it is used by lenders to determine the amount of money they will eventually loan on the home and any conditions or repairs that need to be made prior to funding the loan. In California, appraisers are licensed by the Bureau of Real Estate Appraisers and every holder of a license must conform to and observe The Uniform Standards of Appraisal Practice (USPAP). There are three standard approaches that an appraiser uses to determine the value of real property.
- The Cost Approach – what it would cost to replace or reproduce
- The Comparison Approach – what properties of similar size, quality, age, etc. are valued at
- The Income Approach – what amount of income the property produces (generally used for commercial properties)
An appraisal usually costs around $400 and would be considered part of the buyers ‘Non Recurring Closing Costs’. It is ordered by the lender, usually through an independent third party that specializes in performing appraisals. As a borrower you should receive a copy of the appraisal once it has been completed. If you do not agree with the final appraisal process you can contest it through an appraisal review process if you can present the appropriate documentation to support your values. It may be necessary to renegotiate some of the terms of the agreement based on the appraised value.
Once the appraisal process is completed and agreements are in place the buyer usually removes the ‘Appraisal Contingency’ per the terms of the agreement and moves to requesting the final loan conditions and documents and then arranging the signing with the Escrow Company. This means you are on your way to closing escrow!
As a seller of real property, your Broker can guide you in studying market comparables and setting pricing, but you are certainly entitled to hire your own appraiser to determine the appropriate market value. In fact, if there is a large enough discrepancy between what your Broker thinks is the appropriate price range and your price range, an appraiser could give a home seller another level of professional, unbiased valuation.
When the deal is done the property will be worth what a buyer is willing to pay and a seller willing to sell for, until then use your smarts and obtain as much professional information as possible to price it right. Here are some of the Central Coast Appraisal Services that I frequently work with in the area.
Ken Bryant, Real Estate Broker 