If you’re exploring new career opportunities and have looked at becoming a real estate appraiser, one of the first questions you may have is, “What is an appraisal?”
The meaning of appraisal is the estimation of a property’s value, completed by a professional. This is the broadest definition. If you want to be a property appraiser, you need a bit more information than that, so let’s take a closer look.
What Is an Appraisal?
An appraisal refers to the process of determining something’s value—a car, a ring, or (in this case) a piece of real estate.
A licensed real estate appraiser performs an independent, unbiased valuation to determine the current market value of a property, such as a single-family home, farm, or business. They then communicate their findings in a document called an appraisal report.
Thus, the meaning of appraisal refers to both the process by which an appraiser determines a home’s current worth, and the document they produce to communicate and support their professional opinion.
What Does an Appraiser Do?
An appraiser determines the value of a property by using different methods such as on-site observations, existing property data, and information related to comparable property. While an appraiser commonly provides this information for mortgage lenders, appraisals are also needed during estate planning, divorce settlements, and cases related to eminent domain.
The Appraisal Inspection and Market Research
To create a fair, accurate appraisal, an appraiser will typically complete an in-person visual inspection of the property, looking at elements such as:
- The square footage of the house or business as well as the size of the property
- How many and the types of rooms in the property (such as bedrooms and bathrooms)
- Building materials, including the type of roofing and exterior cladding along with interior materials like flooring and walls
- Age of the home
- Amenities of the property, such as a pool, finished basement, or a patio
- Improvements or updates that can improve the functionality of the home
- Property elements, such as a fence, outbuildings, or a pond
- Structural soundness, such as the presence of mold or water damage
However, the property data alone isn’t enough to determine the fair market value of the property. An appraiser must also perform market research. They look at the location of the property, analyze public records, and research comparable homes in the area that recently sold to produce a credible opinion of value.
The Appraisal Report
Once they have all this information, the appraiser will create a comprehensive appraisal report that supports their estimation of the market value of the property.
An appraisal report will typically include:
- The final appraisal report
- The appraiser’s estimation of the property’s current market value
- Photos of the property and immediate surroundings
- Photos of comparable properties
- An explanation of how the square footage was calculated
- A sketch of the exterior of the building
- A map of the property’s location with regard to other properties used for comparison
- Other relevant data used in the appraisal process, such as public land record, tax records, market sales data, etc.
A real estate appraisal goes a long way toward assuring a prospective homebuyer and their lender that the agreed-upon price for a property is fair.
Home Appraisal vs. Home Inspection
These two terms may seem similar, but they refer to different processes. So, what is the difference between a home inspector vs an appraiser?
A home inspection requires an inspector to look specifically for problems in the home and assess which parts of the home need maintenance. An inspection can include testing the outlets, taking a look at the roof, or running the furnace to see if everything has been installed correctly.
A home appraiser, on the other hand, is not out to find problems—although they will certainly take note of visible defects. An appraiser is only interested in determining the fair market value of the piece of real estate, without looking for deeper issues in the home which may impact how much a homebuyer will spend on repairs.
Things You Should Know About the Appraisal Process
In addition to understanding the difference between an appraisal vs. home inspection, there are several common misconceptions about appraisals. To help clarify things for consumers, we asked our community of real estate appraisers, “What’s one thing you wish customers understood about the appraisal process?”
Here’s what they said:
Other Things to Know About the Appraisal Process
About 23% of survey participants selected “Other” and wrote in their own responses to the question, “What’s one thing you wish customers understood about the appraisal process?”
Their answers included the following:
- “Cost does not equal value.”
- “That everything is relevant to value.”
- “The appraiser cannot provide their opinion of value immediately after the inspection is completed.”
Related reading: Learn more in our post, Market Value and Appraised Value: Exploring Various Appraisal Values.
When Is an Appraisal Needed?
Typically, a lender, such as a bank or mortgage company, will require an appraisal prior to finalizing a property loan. The lender wants to confirm the value of the property because they don’t want to loan more money than the home is worth. This ensures that if they have to foreclose on the property, they can sell it to recover the lost revenue.
This isn’t just for new home loans. An appraisal is also generally required for refinance loans and home equity lines of credit (HELOC). No matter the reason for refinancing, the lender will often require an appraisal.
Other reasons a property appraisal may be needed include divorce and estate valuations. When a couple separates, they may need to have the house appraised so one spouse can buy out the other’s share or so they know how much to sell the property for.
After a property owner passes away, an appraisal determines the value of the property to split between heirs or to put on the market to pay off debt.
Learn More About Becoming an Appraiser
Now that you know a little more about the definition of appraisal and how it’s performed, it’s time to look at whether this career path is right for you. Explore our free guide, Is an Appraisal Career Right for You? The guide includes helpful information about average earnings, what kind of education you’ll need, what the work itself entails, and how to get started on your journey to becoming a real estate appraiser.
Related Resources:
- Free Guide: Is an Appraisal Career Right for You?
- How to Become an Appraiser in 5 Steps
- Real Estate Appraiser Job Outlook
