How an appraiser determines the value of a Billings home for sale

    1962 Ferrari


    The 1962 Ferrari 250 GTO became the most expensive car on earth because a private collector in the United Kingdom was willing to pay $35 million for it. Now, anyone else who owns this particular Ferrari make and model has a benchmark – an idea of how much hers is worth.

    By the same token, you can demand $35 million for your 1962, 2-door convertible Corvette but, unless you’ve encrusted it in gold, you won’t get that much for it. Why?

    Because people are only willing to pay around $74,900 for it (average retail price), according to National Appraisal Guides.

    “Stuff” is worth the amount people are willing to pay for it. It’s that simple. And, in real estate, it’s easy to learn how much buyers are willing to pay for certain homes by searching the sold listings from the recent past.

    So, forget about what your neighbor is asking for her home because it doesn’t reflect reality – it merely reflects what she’s hoping to get for it. Do pay attention, however, to the sales price of the home down the street that sold last month because that home’s price will determine your home’s market value.

    We in the Billings real estate community typically do an excellent job of figuring out a home’s market value and rarely, at least in my practice, does the appraiser’s determination of value differ vastly from mine.

    But, the buyer’s lender won’t take my word for it and will hire an independent appraiser to verify my estimation of market value.

    Both the appraiser and the real estate agent used sold home prices as a basis but the appraiser may also use public records in his or her evaluation.


    Who is this appraiser?

    Licensed, professional residential property appraisers use statistics, from a number of sources, to determine the market value of homes. They use some of the same information that local real estate agents use, for instance, statistics on sold properties found in our local Multiple Listing Database. They may also use public records, such as land and tax records.

    Can you choose your own appraiser? It’s a question I often hear and the answer is “nope.”

    Consumer protection laws state that an appraisal has to be performed by an uninterested third party, typically an appraisal management company. This company will hire the appraiser, so it’s hands-off by both the buyer and the lender.


    The home appraiser’s inspection

    Soon after your offer is accepted, your lender will be notified and will begin setting the appraisal process in motion. The hired appraiser will call the homeowner to schedule a time to visit the home.

    The appraiser will check out the floor plan, make note of any improvements to the home and measure the exterior to determine the interior square footage. The latter duty is critical because tax record listings of square footage are frequently inaccurate.


    Post-inspection process

    Appraisers pay for membership in the local Multiple Listing Service so they have access to the same information that we real estate agents have. He or she will look for homes in the area that have sold recently, typically within the past 6 months. In slow markets she may have to go back in time further, however.

    She’ll then compare the home you’re buying to these homes, making adjustments — much the same way I do when I compile a Comparative Market Analysis – for differences in size, age, features and location. Some appraisers, as mentioned earlier, will also consult local public records.


    The appraisal report

    If you’re curious what the report looks like, Fannie Mae offers an example of the Uniform Residential Appraisal Report here.

    Since the buyer pays for the report, he or she owns it and the seller only gets a copy if the buyer provides one. If the seller strongly disagrees with an appraiser’s opinion of his or her home’s value and, thankfully, there is a dispute process and the buyer will need to provide the seller with a copy of the appraisal.

    I always recommend, in these cases, that the seller go over the appraisal carefully, looking for mistakes. Whether it’s an incorrect figure for the home’s square footage or the age of the home, appraisers can and do make mistakes (they’re human too!). The buyer will need to notify the lender of any mistakes in the report and request another appraisal.

    Still have questions on how your Billings home’s market value is determined? Feel free to contact me.


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