How a Home’s Value is Determined by an Appraiser

How a Home’s Value is Determined by an Appraiser

The value an appraiser gives a home helps determine how much you can get for the home as a seller and how much you will have to pay for the home as a buyer.

Many factors go into an appraiser’s determination of the value of a home. While the values determined by individual appraisers may differ slightly, the methods and means they all use to determine those values are the same. This way, whether you are a buyer or seller of a home, you can feel confident a home’s fair market value as determined by different appraisers will at least be relatively similar.

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The common criteria all appraisers use to determine a home’s fair market value help keep real estate values consistent, comparable, reliable and unbiased. Nearly all real estate transactions utilize impartial professional appraisals to help the buyer and seller agree on a fair purchase price. If you are a buyer taking out a mortgage with a bank, the bank will typically require you get an appraisal on the home to make sure you do not overpay for it. When an appraiser examines a home to determine its value, he or she is required to conduct a thorough visual inspection in person of both the interior and exterior of the home. Learn how an appraiser determines the worth of your home.

Uniform Residential Appraisal Report

All of these factors and others are enumerated on the Uniform Residential Appraisal Report produced by Fannie Mae. Most appraisers utilize this form when conducting an appraisal in order to provide lenders the most consistent, standardized overview of a home’s condition. This form includes spaces for the appraiser’s description of the home’s interior and exterior, surrounding neighborhood and comparable sales. On the form, the appraiser will provide a street map with the property clearly shown, a sketch of the building’s exterior and a description of how the appraiser determined square footage.

He or she also must provide an accounting of the comparable properties used in the determination and photos of the front, rear and street view of the home and of the front of each comparable property. If there are any public tax and land records or other prevailing market sales data influencing the fair market value of a home, the appraiser must list that as well. In all, there are 10 sections in Fannie Mae’s Uniform Residential Appraisal Report, as follows:

  1. Purpose.
  2. Subject.
  3. Sales History.
  4. Neighborhood.
  5. Site.
  6. Improvements.
  7. Sales Comparison Approach.
  8. Cost Approach.
  9. Income Approach.
  10. Reconciliation.


The three “Approaches” listed in the form each help determine a home’s fair market value in a different manner, by examining different criteria. In the sales comparison approach, the appraiser compares your home with other homes of a similar style and size. The appraisal will find several such properties recently sold in the same or similar markets and note the price paid for each one. The cost approach looks at how much it would cost the owner to rebuild the same house in the same lot from scratch if the need ever arose. The third approach, the income approach, is typically only used when the property is to be used as an income-generating property, such as a rental. This approach values a home based on an estimation of how much the property can reasonably earn.

An appraiser must, by law, determine a value for each home according to all three approaches and, then, determine which approach is most appropriate for indicating the home’s most likely fair market value. In the final section, “Reconciliation”, the appraiser explains the rationale for choosing the approach chosen along with his or her overall analysis and resulting conclusions on the home’s value.

Market Trends

Real estate is not a static industry. Home values are always changing. Therefore, in addition to looking at sales prices of comparable homes, an appraiser must also look at prevailing market trends at the time of the intended purchase and sale. Are prices rising or sinking in that area? Are there new factors in the area, such as the construction of a new shopping mall nearby or the closure of a major local employer, that could influence home prices there? Any notable market trends, an appraiser will consider in their determined value by applying a premium or a discount on the comparable price, as applicable.

Amenities and Repairs

An appraiser does not just consider the size of a home in terms of square footage and the architectural style of a home when valuing a home. He or she also considers the home’s amenities including the following:

  • Number of bedrooms and bathrooms.
  • Number of floors.
  • Functionality of the floor plan.
  • Presence of an attic and/or basement and whether they are finished.
  • Type of heating, cooling and hot water utilities.
  • Proximity of local resources like schools, hospitals, police and shopping.

On the flip side, the problems with a home also influence its fair market value. Your home inspector will tell you what repairs are required on a home to make it suitable for purchase, or required, in some cases, before a bank will issue a mortgage on it. Your home appraiser, however, will tell what needed repairs will impact the present value of a home.

Listing Agent Interview

Sometimes an appraiser might interview the selling or listing agent to find out more about comparable properties he or she is thinking of using in an appraisal. The benefit of this extra measure is that photos and descriptions of a home can be subjective and misleading. Descriptions could highlight certain elements and downplay others, for example, while photos could be carefully framed and cropped to do the same.

Lender Requirements

Sometimes, a lender will require an appraiser use certain criteria in selecting comparable properties for the sales comparison approach. For example, a lender might require the appraiser only use comparable properties located one mile or less from the appraised property, built within no more than 10 years of the appraised property and have 15 percent or less of the square footage of the appraised property.

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By Admin