What is an appraisal?
Appraising a home is the act of assigning a monetary value to a property to determine its "fair market value". When a house needs major repairs to be “inhabitable”, the appraisal can be tough to get through. Usually, an appraisal helps to determine whether the sale price is good, below market or above market for the neighborhood.
How is an appraisal performed?
Appraisals should only be performed by licensed appraisers. The Sales Comparison approach to appraisals is the most common type of appraisal. A home appraiser will compare your house to similar homes in the immediate neighborhood with similar features and attributes. Typically, number of bedrooms and bathrooms, year built, quality of construction finishes, square footage and location.
What are comparable sales?
Appraisers will also look at recent sales data of similar houses and will assign your house a value based on that data. There will be adjustments (plus or minus) made for the variances between the “comparable” houses and yours.
Typically, houses that sold within the last 90 days will receive the most weight in the Sales Comparison approach. The closer the house is to yours will matter, too. Mostly houses within a one mile radius will be used. There can be exceptions to this if there are very few sales in the area.
Most real estate contracts have an “appraisal contingency.” Appraisal contingencies are often used to renegotiate the purchase price, to back out of the contract all together or to negotiate a credit for repairs. Sometimes, the lender will require that repairs listed on the appraisal be repaired or replaced prior to close of escrow.