How to Read a Residential Appraisal Report

You recognize the property address, the property description and even the pretty photos of your home. But once you get past these recognizable tidbits, trying to read your residential appraisal report may be like trying to understand a foreign language. When you recognize that the appraisal is couched through an appraiser’s eyes, all you have to do is learn a little “appraisal-speak” to decode this document.

If you’re buying or selling property, you’ll need to know a fair estimate of the property's value. Although its sentimental value may be priceless to you, a lender will look to actual market determinations of the property’s value as a requirement for extending a mortgage. A lender also needs an accurate description of the property, additional information that is also included in its appraisal of value.

Not surprisingly, a lender doesn’t allow a home seller or homebuyer to place an appraised value on a property. A third-party licensed and certified appraiser is the person for this job – someone who is credentialed by state regulatory agencies after completing education, experience and examination requirements.

Your appraisal may be quite lengthy, but the key elements that it should include are:

• A concise and accurate description of the property
• Recent, comparable sales
• Explanatory notes for any significant issues with the property
• An appraiser’s opinion of value, which is supported by the data contained in the appraisal

Appraisal reports may look different, depending on your lender and your appraiser, because there isn’t a single, required appraisal format or style. For residential mortgages, lenders and appraisers commonly use a standardized form that is compliant with Fannie Mae and Freddie Mac requirements. This form is the Uniform Residential Appraisal Report.

No matter what type of form your appraiser uses, it should communicate the same information to document a property’s value.

Reading a residential appraisal report starts with looking at its separate sections. Before you get to the actual appraisal report, you may see a cover letter by the appraiser describing his scope of work and the intended use of the report.

When you begin reading the actual report, you’ll recognize most of the first-page information, which is the property address, the type of property, the property description and tax information, among other identifying characteristics. You may want to fact-check this section for errors; even a typographical error for the address of the property could cause problems with the deed later.

This section has a tendency to trip up the casual reader of an appraisal report. “Comparable” is simply short for “comparable property sales,” which help an appraiser arrive at a fair market value of the subject property. These comparables, sometimes called comps, must be recent comparable property sales to give a fair estimate of market value.

But when you look at the photos and read the descriptions of the comparables in your appraisal, they don’t always look very comparable to your property. Just remember that “comparable” doesn’t mean “identical,” and a competent appraiser knows which properties to include in this section. The appraiser will note on the appraisal report any significant deviations, which you'll see as "adjustments" or "adjustments to value," between the comparables and the subject property to compensate for the differences.

Professional appraisers form an “opinion of value” based on three different approaches to value, but only one of these approaches is typically used in residential appraisals – the sales comparison approach. This approach utilizes the comparables as a benchmark to establish the fair market value of the subject property.

Sometimes, the cost approach may be used in a residential appraisal, particularly if the appraisal is for a fairly new or newly built home that has not depreciated in value.

In some cases, the appraiser may include the income approach, which is reserved for income-generating properties, if you may be turning your one-unit residence into a multi-unit rental property.

While the approach-to-value section may be the most important part of your appraisal, it may also be the most confusing. But if you look for the “reconciliation” or the “summary conclusion,” you’ll see the appraiser’s notes that explain how he arrived at his conclusion for the final value.