Home Buying in 12201>Question Details

Elm, Home Buyer in Albany, NY

What should you expect from the bank appraisal of the home you want to purchase?

Asked by Elm, Albany, NY Thu Nov 20, 2008

Wondering how similar the appraisal and cost of home should be?

Help the community by answering this question:


You have many answers to this question and many different opinions. Some provide incorrect information in my opinion. Unless the scope of work is changed the appraiser is hired to provide an estimate of market value. This estimate will be the same regardless of if the client is a bank, mortgage broker, private owner, REO company, etc. Appraisers use three approaches to value- Sales comparison (also known as market approach), cost approach, and income approach. In general, for single family homes the income approach is not utilized. This leaves the cost and sales comparison approaches. The cost approach works up a value estimate based on national cost guides that use local adjusters to determine an estimated cost to build the home. The appraiser then depreciates the structure and adds in the value of the land. For newer homes the cost approach is a reliable indicator of value. For older homes the cost approach is not a reliable indicator due to the inaccuracies involved in estimating accrued depreciation. Generally you will see the cost approach used on newer homes or if the client request it be used.

Keep in mind there is the common misconception that cost equals value. This is not the case and I think this is the basis of your question. I have appraised new homes that have spent over $100,000 on site work for a variety of reasons (Soil condition, etc). Well this is clearly a cost to the owner however it didn't add anywhere near $100,000 in value to the home. I have a home right now that the owner claims cost $400,000 to build. However, he built the home on the corner of a busy road. Due to the external obsolescence created by the traffic noise the market value of the home is significantly less then the reported cost.

To answer your question, most of the time cost and market value are the same. However, sometimes they aren't. The cost approach serves a good check of the estimated market value. If a home buyer can build a new home cheaper they will choose building over buying an existing home.

Hope this helps!
0 votes Thank Flag Link Sun Nov 30, 2008
Hi Elm,

A lot of answers but not to the specific question you posed. The appraisal is indeed an opinion of what the market value of a home is at the time of inspection. You can perform appraisals for a different point in time as well, but that is not germane to your question here. The cost of a home is the monetary value (dollars) it would take to (re)build it. That specifically excludes the underlying land as that is considered to be immovable. This is why your home insurance is always for a lesser value than the appraised market value.

The Cost Approach that is sometimes used in an appraisal report attempts to recreate the cost of rebuilding the home (with similar materials and appropiately adjusted for age depreciation) and then adds the estimated value of the associated land.

Now keep in mind that the appraisal report is an opinion of value that does differ somewhat between appraisers. However, the development of that opinion is an involved but systematic process that clearly shows the underlying arguments put forward to come at that value. When done correctly and consistently, there usually are few surprises at closing when the borrower attempts to get a mortgage loan for the purchase. Remember, appraisers merely report the market. Unlike realtors, they cannot make the market.

Let me know if you have any further questions.


Jacobus "Jack" Vollenberg
RE Appraiser/RE Sales Associate
Vollenberg Appraisers/ERA Statewide Realty
0 votes Thank Flag Link Fri Nov 21, 2008
You have to realize that although you are paying for the appraiser the appraiser is working for the banks behalf. They will come into the property, look at everyroom, take pictures of all rooms and teh utilities as well as all 4 sides and a street view. they will go back to their office and find similar homes, similar age, style, condition and neighborhoods that have sold in the last 6 months. From that they will determine the value of the house.

The key to the appraisal is to see if the value is at or above what you are paying for it, if it is under you will have to have the seller reduce the price or come up with the difference at closing. If it is at or above you will do nothing, as you will be on yoru way to closing shortly. Now the appriasal may not give you what the true value is as the appraser needs to keep the value at or near what you are paying for, if they value it too high the bank will want to know why you are paying such a low price.

good luck with your purchase
Web Reference: http://www.ScottSellsNH.com
0 votes Thank Flag Link Fri Nov 21, 2008
The appraisers assignment is to discover if the value of the house in today's market will cover the risk taken by the bank. If you are getting a fantastic deal on the purchase, the appraiser only needs to appraise for the bank's risk....it is not necessary for them to bring it to the highest $.

The bank requirements put on the appraiser in this market are 1) same zip code 2) same school district 3) preferably SAME NEIGHBORHOOD but certainly not more than 1/2 mile distance from the subject house and 4) MOST IMPORTANT they can only deal with the most recent of closed sales, under 3 months ago.
Web Reference: http://GailGladstone.com
0 votes Thank Flag Link Fri Nov 21, 2008
The house appraisal process is much more passive than might be assumed. The home appraiser will come in, look around, measure and then leave. After they leave, they will also check on the market in your neighborhood and write up a detailed report. It is a quick and easy process, which helps find out the fair value of your home in order to help you with buying, selling, or refinancing
0 votes Thank Flag Link Fri Nov 21, 2008
Elm, per definition, an appraisal is:

"an estimate or opinion of the value of a piece of property or parcel of land, as of a certain date, and supported by objective data".

What should you expect? A qualified opinion of what is the MARKET VALUE of the home you are looking to purchase. Market value is the most probable price a home should sell for, however, it is not a guarantee that the house will actually sell for that price.

Since an appraisal is an estimate, you will get different answers from different appraisers. If the property is "typical" for the neighborhood, these opinions or estimates should be very close in value.

Hope this helps!
Susanne Novak
Solutions for Real Estate
Tel: 614-975-9650
Fax: 614-364-7478
ABR Accredited Buyer Representative
FIS Foreclosure Intervention Specialist
HUD Registered Bidding Agent
0 votes Thank Flag Link Thu Nov 20, 2008
Hi Elm,

I agree with Lori. Each appraiser has their own view and opinion. Some appraisers are more detailed oriented than others. Don't be afraid to ask another new homeowner about their bank's appraiser.

Thank you,
Shelley Englert, Realtor
0 votes Thank Flag Link Thu Nov 20, 2008
Elm, in my experience, the appraisals have been all over the place. Sometimes, they come in right at sales price - other times much higher or lower. I know it's a vague answer, but that's what happens. It's one person's opinion at that given time. If it's your appraisal, the best thing you can do is review it and look at the comps so you understand where that value came from. I've had 3 different appraisals on the same property done at the same time and all were very different.
0 votes Thank Flag Link Thu Nov 20, 2008
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