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Having a property appraised is a basic part of the mortgage process.  Mortgage companies give loans to potential homeowners based upon the value of the property.  When a home is used as collateral for a loan, the lender probably wants an appraisal report to make sure that the loan will be assured. 

This leads to the question as to who are appraisers and what do they do?  Appraisers are an independent and objective third party that doesn’t have any financial stake in the transaction apart from the fee of determining the property value.  An appraiser shouldn’t have any connection to either the buyer or seller of the property, are licensed by a state, and are incredibly knowledgeable about the real estate market.  Most mortgage companies often have an appraiser on staff; however homebuyers pay for the appraisal when applying for a mortgage.

An appraisal report can be complicated and detailed.  Some of the details include the comparison of the property with multiple properties in the area The appraisal should also assess the real estate market surrounding the property, including any negative influences affecting the market value of the property.  An estimate of how long the sale should take should be included as well.  The three basic methods of appraisal for residential homes are the sales comparison, the cost approach and the income approach.  The income approach is rarely used for single family homes; it is used to put in comparison multiple units, based on capitalization rates.

The sales comparison approach utilizes the market value of the property determined by the appraiser by comparing it to other recently sold properties that are similar.  The real estate term is “comparables”.  The cost approach is basicall or texty an estimate of how much money the property is worth if it were destroyed.  This is a popular method for new construction.  It is important to understand that an appraisal is not a home inspection.  It will mention certain defects and problems the property might have, but it will not give you a detailed report on whether the property is in decent condition.  To find that information out, hire a home inspector who will look at the foundation, plumbing, electrical, etc.

Homes that are in foreclosure tend to vary in appearance from community to community.  Some foreclosure sales are handled very quickly and sold simply for the market value by the lender.  The general method of sale is to have a moving van clean out the foreclosed home, followed by a real estate brokers for sale sign.  After the property is sold, the new owners move in.  However, in other neighborhoods, a home might be boarded up and signs advertising bank-owned might be placed on the property.  The property might have deteriorated with broken windows and a lawn that is an eyesore.  Constant signs of foreclosure can leave neighbors worried about the value of their home.

Most appraisers try to find arm length transactions when doing an appraisal.  These would be sales at market value, with a willing seller and buyer with neither party under duress.  They do this because foreclosed homes are not representative of market value generally.  However, if a neighborhood has a large number of foreclosures in an area, it may affect value.  Some studies show that neighborhoods with good foreclosure numbers see a minimal drop in property value, although in some neighborhoods extreme neglect of foreclosed properties can severely detract from market value.  If you or a loved one is facing foreclosure, please contact a Connecticut foreclosure defense attorney like me to find out your various legal rights and options in order to best proceed in your case.