Home Appraisal Methods

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Independent appraisers evaluate homes to determine the worth for a number of reasons, including value for inheritance and taxation. Lenders use appraisals to determine the value of the home before making a home mortgage. The thoroughness of the residential appraisal often depends on the reason for the evaluation. Residential and commercial appraisals typically use different methods to determine value of the property, but residential appraisers select from several standard evaluation methods.

Square Footage

Appraisers use the square footage of the home to appraise value. This method requires the appraiser to determine either the square-foot cost based on the general quality of the home, cost to replace the home, or the per-foot cost of homes in the general geographic location of the home under appraisal. The home value is determined by multiplying one of these figures by the number of square feet in the home. The appraiser finds the square footage total from county tax records or by taking physical measurements of the home.

Market Evaluation

Market appraisal methods use the average of the general costs of the homes in the geographical area to determine home value. Lenders ask appraisers to use this approach when the amount borrowed is far below the general home value. The lender understands that the home resale, should the borrower fail to repay the loan, returns more than the value of the loan. Appraisers conducting some market evaluations drive by the home without entering to complete the appraisal report.

Sales Comparison

Appraisers use the comparable sales for a minimum of three area homes sold within the past six months to help establish the value of the home undergoing the evaluation. Appraisers sometimes use sales up to a year old in neighborhoods without any recent sales. Comparable home sales means the use of homes with the same approximate square footage, number of baths and bedrooms, garage, property size, quality of construction, age and any additional similar features, including swimming pools or spas.

Assessed Value

The assessed value of the home requires an appraiser trained by the county or city to use a general value list created by the agency to calculate the value of the home. This method attaches worth to each home feature, including covered porches, deluxe bathtubs with jet features, amount of finished square footage on each level of the home and additional home features, including attached garages, swimming pool and any attic space used for storage. Each feature has an established value used by all appraisers in that municipality. The appraiser adds the value of the features and subtracts an amount for depreciation. This figure is then added to the value of the land to give the final appraisal for the home.

Cost Approach

The cost approach to making a home appraisal requires the appraiser to have information about area home building costs. The appraiser uses the features in the home, taken from the county property tax records or by making a personal inventory, and determines the cost of labor and materials to rebuild or replace the current home. The appraiser then subtracts the yearly depreciation from this number. The depreciation calculation uses the age of the house and subtracts a percentage for each year from the value of the new house. The depreciation percentage depends on the geographic region. Homes in areas with severe weather, for instance, typically have greater depreciation compared with homes in moderate climates. The appraiser adds the cost of the land to the depreciated construction figure to determine the home appraisal using the cost approach.