An appraisal report is one of the many checks and balances used by lenders to protect themselves, and you, from being snookered.

You are making or have made your best offer on the home you'd like to purchase. The sellers set a price. The realtor liked the price. You accepted the price. Enough said, right? Not so fast, cowboy. How do you know you didn't get snookered on the price? Or maybe you are in the process of refinancing. Has the value of your property gone up or down since you bought?

Lenders want to know the answers to these questions, too. After all, they aren't about to lend you hundreds of thousands of dollars just because you asked. They have a fiduciary responsibility to their stockholders to have collateral of equal or greater value before making a loan. Besides, they don't want to get snookered either. An appraisal is one of the checks and balances used by lenders to protect themselves.

So who makes sure the value of the property is in line with the amount being paid? There are too many people exposed in the real estate process to let such a transaction proceed without first ensuring that the value of the property is at least equal to the amount being paid.

This is where the appraisal comes in. An appraisal is an unbiased estimate of what a buyer might expect to pay - or a seller receive - for a parcel of real estate, where both buyer and seller are informed parties. To be an informed party, most people turn to a licensed, certified, professional appraiser to provide them with the most accurate estimate of the true value of their property.

So what goes into a real estate appraisal? The part you see is the inspection. An appraiser's duty is to inspect the property being appraised to ascertain the true status of that property. The appraiser must actually see features, such as the number of bedrooms, bathrooms, the location, and so on, to ensure that they really exist and are in the condition a reasonable buyer would expect them to be. The inspection often includes a sketch of the property, ensuring the proper square footage and conveying the layout of the property. Most importantly, the appraiser looks for any obvious features - or defects - that would affect the value of the house.

Once the site has been inspected, an appraiser uses one of three approaches to determining the value of real property:

1. The cost approach
2. The sales comparison
3. The income approach

The cost approach is the easiest to understand. The appraiser uses information on local building costs, labor rates and other factors to determine how much it would cost to construct a property similar to the one being appraised. This value often sets the upper limit on what a property would sell for. Why would you pay more for an existing property if you could spend less and build a brand new home instead? While there may be mitigating factors, such as location and amenities, these are usually not reflected in the cost approach.

With this approach, appraisers rely on the sales comparison approach to value these types of items. Appraisers get to know the neighborhoods in which they work. They understand the value of certain features to the residents of that area. They know the traffic patterns, the school zones, the busy throughways; and they use this information to determine which attributes of a property will make a difference in the value. Then, the appraiser researches recent sales in the vicinity and finds properties that are "comparable" to the subject being appraised. The sales prices of these properties are used as a basis to begin the sales comparison approach.

Using knowledge of the value of certain items such as square footage, extra bathrooms, hardwood floors, pool or view lots (just to name a few), the appraiser adjusts the comparable properties to more accurately portray the subject property. For example, if the comparable property has a jacuzzi and the subject does not, the appraiser may deduct the value of a jacuzzi from the sales price of the comparable home. If the subject property has an extra bathroom and the comparable does not, the appraiser will add a certain amount to the comparable property.

In the case of income producing properties like homes acting as rentals, the appraiser may use a third approach to valuing the property. In this case, the amount of income the property produces is used to arrive at the current value of those revenues over the foreseeable future.

Combining information gathered from any of these approaches, the appraiser is then ready to stipulate an estimated market value for the subject property. It is important to note that while this amount is probably the best indication of what a property is worth, it may not be the final sales price. There are always mitigating factors such as seller motivation, urgency or "bidding wars" that may adjust the final price up or down. But the appraised value is often used as a guideline for lenders who don't want to loan a buyer more money that the property is actually worth. The bottom line is: an appraiser will help you get the most accurate property value, so you can make the most informed real estate decisions.

Once your appraiser has arrived, you do not need to accompany him or her along on the entire site inspection, but you should be available to answer questions about your property and be willing to point out any home improvements.

Accessibility: Make sure that all areas of the home are accessible, especially to the attic and crawl space

Housekeeping: Appraisers see hundreds of homes a year and will look past most clutter, but they're human beings too! A good impression can translate into a higher home value

Maintenance: Repair minor things like leaky faucets, missing door handles and trim

Lastly, you should:

• Install smoke detectors on all levels (especially near bedrooms)
• Install hand rails on all stairways
• Remove peeling paint and repaint the effected area

One of the most misunderstood issues about appraisals is who owns the report. The buyer pays for the report, yet technically the mortgage company "owns" the report. Some less scrupulous practitioners may use this arrangement as a means of hanging on to customers who do comparison shopping. While we would never use such a tactic, appraisers are independent business people. They are required to have permission before releasing the report to anyone but the mortgage company who requested the report. If you decide to work with someone else after giving us a fair shake, we'd be disappointed, but would never withhold the release of an appraisal.

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