One off the questions that we get a lot here at the Heights is what exactly is the appraisal looking for? On the surface, this seems like a pretty simple question. The FHA appraisal is an assessment of what the value of the home is! But, it doesn’t take very long at all to see that there is actually a bit more going on with the appraisal than just that.
A more comprehensive, although still simple, explanation of what the appraisal is doing is that the appraiser is confirming the value of the home for the underwriter and is also making sure that the house doesn’t need any major repairs.
But, as we dig a bit deeper, there’s a bit more to that second part than meets the eye. The idea that the appraiser is confirming whether or not repairs are needed is also a little bit too simple. What the appraiser is actually doing is confirming many of the minor details of the home and then confirming that the home, as it stands today, confirms to the Department of Housing and Urban Development’s most recent handbook for guidelines on minimum required property conditions.
Ok, that was a mouthful. But, what does it actually mean? Well, each year, HUD updates their property handbook. Some years they remove some guidelines, but most years, there are more things for an appraiser to what out for. You can see a copy of the handbook here: https://www.hud.gov/program_offices/housing/sfh/handbook_4000-1
Basically, the appraiser has three jobs:
- First – do research on the property to determine important points about the home
The appraiser is going to do research on the types of features, number of rooms, where the water is supplied to, whether the property is on public sewage or connected to a private septic tank, identify additional value-adding features such as fireplaces and garages, etc.
- Second – find comparable properties based on his findings that have sold in the area and use them as a basis to develop the value of the property.
Now that the appraisal knows the size and shape of the home, he will find similar homes that have sold in the same are within the prior six months. Then he’ll use these properties to develop a market value of the home for the underwriter to use to determine the final loan amount.
- Finally – compare the condition of the home to the HUD handbook
Now the appraiser will inspect the home for condition and compare that to the handbook to see if anything will need to be repaired before closing, or to see if there is anything that will count the house itself out from qualifying for financing.
A good appraisal will have a lot more information than simply what the home is worth. So much so that it can sometimes be hard to follow along and understand everything that is being communicated. If you have an appraisal that you don’t understand, we are here to help! Reach out to us here and we will happily go over the report page by page with you to make sure that you are fully informed on the new home that you are buying!