Real Estate Appraisals

Difference Between an Appraisal and a Home Inspection

Although they appear to be similar, appraisals and home inspections are two entirely different things. The purpose of an appraisal is to estimate value, while the purpose of a home inspection is to identify structural and safety issues. The appraiser's client is usually the lender, while the home inspector's client is usually the buyer. A home inspector examines the mechanical systems which make up the building itself - the foundation, walls, roof, heating system, electrical system, plumbing, doors, windows, appliances, etc. The appraiser must look over the neighborhood, analyze the local real estate market and select comparable sales and listings.

Can I Use the Same Appraisal More Than Once?

Appraisals prepared by licensed appraisers must identify the client, the intended use, the intended user and an effective date of value. If any of these change, you need a new appraisal. If the appraisal is less than six months old and the property and market conditions have not changed, most lenders will accept a reassignment of the appraisal. Most appraisers charge a small fee for this. If the appraisal is older than six months, most lender clients will require a new appraisal or at least an "appraisal update." The appraiser reinspects the property, searches for new comparable sales and enters a new date of value. This could involve a little work or a lot of work. The value estimate may or may not change. With both retypes and updates, the appraiser should disclose the original client, previous value estimates and dates of value.

Types of Appraisals

An appraiser must try to determine the "fair market value" of the property. The estimation of this value is approached in 3 ways. The cost approach determines the replacement cost of the land and the building at today's rates, less depreciation. The income approach measures the income potential of the property. The sales comparison method is the most valid approach in estimating property values. This method analyzes the selling prices of recently sold, comparable properties in the area. Sometimes a combination of methods is used to evaluate the property.

Drive-By Appraisals

Drive-by appraisals are a type of limited appraisal conducted without an interior inspection of the property. They require shorter forms and produce faster turnaround times, which both lenders and borrowers like. Lenders are using more limited types of appraisals including computerized automated valuation models to support their loans. Real estate agents and brokers use a simplified version of the sales comparison approach when they prepare a comparative market analysis (CMA) for their clients. The sales comparison approach has been immortalized in the standard Fannie Mae/Freddie Mac Uniform Residential Appraisal Report (URAR). The form's two legal-sized pages devote less than two inches to the cost approach. Fannie and Freddie now use even shorter "drive-by" appraisal forms which have completely eliminated the cost approach.

Useful Links

Uniform Standards of Professional Appraisal Practice

Informative Articles on Real Estate

Chet Boddy is a Certified General Real Estate Appraiser, Realtor and real estate consultant who has lived on the Mendocino Coast since 1976. Look for this and other real estate columns on Chet's web site at