If you’re new to the appraisal industry, you might not be fully versed in what the job entails. When you think of the home appraisal process, what first comes to mind? Probably the top-to-bottom overview and valuation of a property and its surrounding area for fair market purposes. While this may be the most common type of appraisal, there are quite a few others at play. Today, we’ll walk you through the four most common types of appraisals and when they occur so that you can get a better understanding of the appraisal practice.
The different types of real estate appraisals.
There are four main types of appraisals that may be requested during the mortgage loan process:
- Full Appraisals
- Exterior-Only Appraisals
- Rental Analysis
- Broker Price Opinion (BPO)
Full appraisals
The full appraisal is the most common way to determine the value of a single-family home, and it is often referred to as “the 1004” (aka, the ten-oh-four), named for the report’s form number. The 1004 is the type of valuation most people imagine when they think, "home appraisal.” This is probably because it is an all-encompassing interior and exterior view of the property. It also shares details of the surrounding properties. A full appraisal includes information such as:
- Photos of the property's interior, exterior, street views, and surrounding areas
- Measurements of the home including square footage and floorplan details
- Written evaluation of the condition of the property (i.e., construction, heating/cooling, age, and more)
- Details about the type of neighborhood and nearby facilities and services
The appraiser thoroughly covers these details in reports, which the lender then receives and uses to help determine the fair market value.
Exterior-only appraisals.
Commonly referred to as “drive-by” appraisals, exterior-only appraisals are concerned only with the outside of the property and its surroundings. They aren’t as simple as just driving up, taking some notes, and leaving, though. Drive-by appraisals include finding similar properties to use as comparable sales (“comps”) and doing exterior inspections of those, as well. The appraiser also needs to consider environmental conditions and any other factors from surrounding areas that may impact the value of the home.
Exterior-only appraisals are most often used in cases of foreclosure and in determining home equity loans. In these cases, appraisers are looking for a quicker idea of the home's street value.
Rental analysis
While a rental analysis is just as thorough as a full appraisal, it differs in purpose. Just as it sounds, rental analysis appraisals are for the careful valuation of investment properties, as opposed to homes mortgaged for single family living. For this type of valuation, an appraiser needs to use multiple comparable leased rental properties to determine the appropriate market rent of a property.
The same factors that would be considered for what makes a property favorable to buyers are instead considered for renters. But the rent amount needs to be able to cover the costs of the home, such as:
- Mortgage
- Insurance
- Property taxes
- HOA and other maintenance fees
Investment properties are ever-growing in popularity for buyers in the real estate market. As an appraiser you can expect a wealth of opportunities in rental analysis, especially in up-and-coming cities.
Broker Price Opinion (BPO).
A broker price opinion (BPO) is the fourth type of home appraisal, and unlike the rest, is not typically valuated by an appraiser. A BPO is, instead, an informal opinion of a property’s value given by any real estate professional (agent, broker, or appraiser).
A BPO is an appealing option for those who want an idea of a property’s value more quickly than it would take to get a full appraisal. It also costs less than a full appraisal. It is most often used in mortgage insurance cancellations or to get a stand-alone second lien mortgage.
Appraisal work is diverse and rewarding.
Are you ready to take pride in what you do? Are you ready for a diverse flow of jobs and responsibilities? And make a healthy salary, to boot? We covered only four types of appraisals you will be able to practice once you earn your license, among an abundance of other opportunities. Not only can this work be incredibly lucrative, but you can take pride in the fact that you’re contributing to an ever-evolving industry that needs the attention to detail you can provide. Appraisers are a key component to the real estate industry and, luckily for you, are in hot demand. Learn more about how to get started in your appraisal career today. Why wait?
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