Appraisal Report

An appraisal report is a comprehensive report outlining a property's estimated value based on multiple factors, for example, its quality, location, and condition. It provides a neutral evaluation of a property's market value and prevents loan providers from giving oversized loans.

Qualified real estate appraisers prepare this report based on current market trends, an in-person inspection, research concerning the sale of similar homes, and property-related details, like amenities, the floor plan, etc. There are two types of appraisal reports — restricted appraisal reports and appraisal reports. Mortgage providers use this document to assess if they offer the right loan amount.

• The appraisal report meaning refers to a comprehensive written statement that estimates a real estate property's current fair market value.
• The report has various advantages. For example, it helps lenders to offer an appropriate loan amount. Additionally, it enables a home buyer to negotiate a lower price.
• The two types of appraisal reports are restricted appraisal reports and appraisal reports.
• Appraisers create this comprehensive report after considering various aspects, for example, market trends and property details like amenities, the living area, etc.

The appraisal report meaning refers to a written statement prepared by qualified appraisers to outline a property's estimated value after considering its location, condition, and various other factors. While it can prevent loan providers from over-lending, homebuyers can utilize the statement to negotiate a better deal with the property seller.

Moreover, since a qualified appraiser estimates the property's value based on thorough research and in-person inspection, the document offers an impartial market value assessment.

This report can also help individuals estimate the cost of repairing a property. For example, it can help one know the cost of repairing the damages resulting from a natural calamity, a storm.

As noted above, appraisers create a property appraisal report based on various factors. Let us look at some of the factors in detail.

#1 - Current Condition Of The Property

Appraisers assess a property's current condition and other factors to determine its value in the market. They inspect properties for safety and health concerns and ensure to mention of any risks or violations when preparing the final report. Usually, these include a staircase without a railing, old wiring, etc. Additionally, an appraiser evaluates a property's overall structure. If a property requires significant repairs, its appraised value will be lower than that of a similar, recently renovated property.

#2 - Recent Sales

Appraisers check the records of recently sold properties within the same area while ensuring they have a similar layout and size. The selling prices help them estimate a property's market value.

#3 - The Surrounding Conditions

Appraisers assess a property's surrounding conditions to determine a property's current market value. For instance, a house in an area lacking development will have a lower value than a property in an up-and-coming locality.

Lenders must obtain a property appraisal report from a licensed appraiser adhering to the HVCC or Home Valuation Code Of Conduct. Also, one must note that the buyer and the seller cannot be involved in the appraisal process. Once the lender obtains the report, it determines the loan size based on the appraised or sales value, whichever is lower. When the asking price exceeds the appraised amount, any of the following three things may happen:

• The seller will lower the asking price to equal the appraised amount. 
• Buyers walk away from the deal.
• The buyer covers the difference by paying at the closing table.

Previously, these reports were of three kinds — summary, self-contained, and restricted-use. Since there was a significant overlap between the summary and self-contained types, they were combined to form a single report called an appraisal report. Moreover, the self-restricted one is now a restricted appraisal report. Let us look at them in detail.

• Appraisal Report: Generally, this report's length ranges from 30 to 300 pages. It briefly summarizes an appraiser's conclusions and offers sufficient details to convince readers that the appraisal is complete and accurate. Typically, such a report has photos of rental comparables, sales comparables, and the property. Moreover, it includes adjustment grids elucidating the appraiser's value conclusions, adjustments, and reasoning. Finally, individuals must note that it also comes with a written certification and reconciliation.
• Restricted Appraisal Report: This report briefly outlines the appraiser's value conclusion, usually with little or no in-depth discussion. Moreover, it includes short but appropriate market and property descriptions, a reconciliation, and a written certification. The length of this report may range from 3 to 30 pages approximately.

One can follow these steps to read such a report.

Step 1: Check if the property's address is correct in the 'Subject' section of the report. Don't forget to check the County and ZIP Codes.

Step 2: Look at the total appraised value in the 'Reconciliation' section. Individuals can also find this value in another section of the report. They must ensure that the values match and the appraisal date is correct.

Step 3: Check the appraiser's method to compute the property's value. Typically, appraisers use cost, comparable sales, or income approach. First, one must check whether the appraiser has used the method correctly. For instance, in the case of the comparable sales method, the comparables selected by an appraiser must be as recent as possible. Individuals can take the help of their real estate agent for this step.

Step 4: Check the details about the appraiser's onsite visit. If the appraiser did not enter the property or see the exterior, the person is unfamiliar with it. That said, if the property's description in the report is accurate and the 'Improvements' section is complete, the appraiser has adequate knowledge about the property.

Step 5: Check the neighborhood score and see whether the appraiser has accurately entered the neighborhood's characteristics.

If individuals think the appraisal is inaccurate, they must contact the lender, address the issues impartially, and initiate a second appraisal. Finally, they must complain to the state appraisal board if they find a serious issue.

Let us look at these appraisal report examples to understand the concept better.

Example #1

In 2020, Miller & Perotti's Jannette Miller appraised Tenisha Tate-Austin and Paul Austin's home in Marin City, California, at $995,000. The black couple was suspicious as in the previous year; their property was valued at $1.45 million, per court documents.

Per the lawsuit, Tenisha and Paul "whitewashed their home" after the appraisal by removing all the family photographs and art. Then, another appraiser from a different organization appraised the property. During the appraisal, both were not home; they asked a white friend to be present and answer the door. This appraisal valued the property at $1.48 million, a 49% increase from Jannette Miller's valuation three weeks earlier.

The couple's attorneys said that the reason behind Miller's unreasonable valuation was race because of the comments made by her in the appraisal report.

Example #2

In January 2023, the FHA or Federal Housing Association announced that it posted a draft ML (Mortgagee Letter). The draft proposes alterations, including the incorporation of indications concerning unlawful bias in an appraisal report or other violations of the federal fair housing or local and nondiscrimination regulations as the foundation for starting another appraisal. 

This draft will update the acceptability parameters for property and state how borrowers can place a request for their review of an appraisal. Moreover, it will update the review standards for appraisal to clarify guidance regarding an appraisal report's quality and an ROV request's processes.

This article has been a guide to what is an Appraisal Report. Here, we explain it in detail with its examples, how to read it, and its types. You may also find some useful articles here -

• Appraisal Rights
• Investment Appraisal
• Appraisal Costs