An appraisal is an estimate of market value as of a specific date. In 1992, the state of California began licensing appraisers. In order to be a licensed appraiser in California, there is now extensive education, experience, testing and reviews required. The Office of Real Estate Appraisers web site explains these requirements. "In February 2004, The Appraiser Qualifications Board (AQB) of the Appraisal Foundation adopted changes to the real property appraiser qualifications criteria that will become effective January 1, 2008. The requirements individuals must meet in order to become a licensed or certified appraiser will change significantly. The changes include increased requirements for qualifying education and experience, and a new Uniform State Appraiser Examination."

In the residential market of single family homes and condominiums, the best, most reliable and acceptable method of determining value is the Sales Comparison Analysis. Sales of similar properties are used to determine the current value. In order to be acceptable to lenders, an appraisal report must adhere to specific guidelines. These guidelines have been established by FNMA, Freddie Mac and other federal organizations. If these guidelines are not met, there must be specific and acceptable reasons why the guidelines have been altered. Few lenders will accept appraisal reports that are outside of guidelines without an acceptable explanation because they are difficult to sell to the secondary market and possible represent a higher risk.

The question that most borrowers ask is "What does an appraiser look for in a property?" The short answer is "anything" that a knowledgeable buyer would look for in a property. The longer (but not the longest) answer includes several important categories. Selection of comparable sales is based on these categories along with the federal guidelines.

Date of sale of the comparable sales must be within 6 months. Sales should be closed and verified by at least two sources. In changing markets, the time frame may also change, but explanations are required. Current active listings can NEVER be used to establish a current value and be acceptable to typical lenders.

All sales must be the same type of ownership. For example a leasehold ownership can not be compared to a fee simple form of ownership. Most homes in San Diego county are a fee simple ownership. Site size, site utility, site topography, and of course site stability is an important consideration. Views are very important. That peak of an ocean from the second level bathroom window does not equal a sit down ocean view from the living room.

Design and appeal of the properties are considered but can be sometimes difficult to prove. For example, does that Craftsman home bring more or less value than the Spanish home built in the same year? Quality of construction is very important. A tile roof is far superior to an old wood shake roof. Custom homes are far superior to tract built production homes.

Actual age, effective age and condition of the property is also important. Gross living area is compared among sales along with total room count and the number of bedroom and baths. It is not acceptable to compare a two-bedroom house to a four-bedroom house. Features are also compared and contrasted. A short list of features include heating, cooling, energy efficient items, parking, patios, decks, landscape, fireplaces, fencing, pools, tennis courts, barns, spas, saunas, kitchen remodeling and bath remodeling. The list of features can be very long.

A borrower should always read and review the entire appraisal report. There is much more to an appraisal than just the final value estimate.

Written & graciously provided by KARIN YOELIN, Certified Residential Appraiser