So, I'm about to head on out to my listing in Desert Ridge where I'm meeting the appraiser to get him access so that he can do his job...take measurements, make notes about the property, confirm all the information in the MLS and Tax records is correct and probably drive the neighborhood to see the comparable homes that sold.
Wikipedia defines an appraisal as "...the process of developing an opinion of value, for real property (usually market value). Real estate transactions often require appraisals because they occur infrequently and every property is unique (especially their condition, a key factor in valuation), unlike corporate stocks, which are traded daily and are identical (thus a centralized Walrasian auction like a stock exchange is unrealistic). The location also plays a key role in valuation. However, since property cannot change location, it is often the upgrades or improvements to the home that can change its value. Appraisal reports form the basis for mortgage loans, settling estates and divorces, taxation, and so on. Sometimes an appraisal report is used to establish a sale price for a property."
I want to highlight the first part of this definition..."an opinion of value". An appraiser goes out to the property, compares similar homes (homes sold in last 90 days, active homes and pending homes) and then using a standard formulae to calculate an appraisal value or an Opinion of Value. In reality, they are just coming up with a justification for the purchase price.
The appraisal is in place to protect the buyer and the lender (since the lender is usually at most risk if the house goes to foreclosure).
I always meet the appraiser at the property, whether I'm the listing agent or buyer's agent. I want to make sure they have all the comparable properties I used to justify my list price but also the negotiated price. I'm not about to let chance or an ignorant appraiser impact the sale of the house.
Appraisal formulae...this is no secret and appraiser's love it when an agent understand how they come up with an appraisal value. For the record, they never use $/sq ft for an appraisal. Some clients of mine (and cross agents) will justify their home value by saying "Average home in this neighborhood sells for X $/sq ft" In reality, no one cares about a $/ sq ft value...the buyer's don't care, as a listing agent I don't care and the appraiser doesn't care. $/sqft is a rule of thumb but never used in the appraisal process.
Appraisers will compare the listing to other "comparable" homes. So, they look for comparable homes in the neighborhood with similar size and characteristics. So, if the home being appraised is a 3 bedroom, 2 bathroom, 2 story home, 1469 sq ft in Fiesta @ Desert Ridge, then they will only look at homes Sold in the last 90 days that were 3 bedroom, 2 bathroom, 2 story homes, 1469 sq ft in Fiesta @ Desert Ridge. They won't look at single story homes or 4 bedrooms homes or 2000 sq ft homes as a comparison. If there weren't any comparable homes in the neighborhood in 90 days, then they start to adjust the comparables...180 days closing time, compare adjacent neighborhoods, compare to 4 bedroom homes, etc. But, they try to look at similar homes in the same neighborhood first.
Luckily for me, I had one closing in 90 days that was the same model and size match and another one that closed in 120 days that was a model and size match. I also found two similarly sized homes in adjacent neighborhoods that sold for a small bit higher but these two homes were a bit more upgraded and newer.
My listing and negotiated contract price is the highest in the neighborhood but I think the comparable home closings justify the negotiated price of my listing. I'm keeping my finger's crossed! I'll update after this listing closes.
Here is a good discussion on the appraisal process and what an appraiser actually does.