Once a buyer and seller agree on a sales price, the contract is then sent to the lender for the loan approval process. One of the first things the lender will do is to order an independent appraisal. The appraiser will use local data to determine a value for the subject property. The main purpose is to protect the lender in the event of borrower default by ensuring that the property is actually worth what the buyer is willing to pay, but this also protects the buyer from over-paying as well.
The process appraiser use to determine value is relatively simple. They start by searching for local comparable properties which have closed recently. The first take homes that are most similar and closest in proximity to the subject property and will go back 60 or 90 days. They choose the 2 or 3 which most closely match the subject property and use them for comparison. Since these comparable homes have closed recently, they are assumed to represent market value. If the appraiser needs to go back further in time or further in distance from the subject home to find comparable properties they will do that as well.
Once the appraiser has the comparable properties identified, they will then compare the subject property to them. They will add or subtract value for size, location, amenities, features, upgrades and so on until they have a value for the subject property. This is then reported to the lender in the form of a final appraisal.
Can I Influence the Appraiser's Value?
Something that I offer my clients when I list their home is an "appraisal packet" which I provide appraisers to help them to determine the value of the home. This could be providing comps used in my own competitive market analysis, floor plans, plats, or other insight about homes that are pending or recently sold. I also provide them a list of features and update that have been made to the home, a brochure, and will often meet them at the property to see if I can answer any questions. This is a vital and important step in ensuring my clients' homes sell for top dollar, by ensuring the appraised value meets or exceeds the agreed purchase price.