• Home appraisals are an opinion of value.Buena Vista Images/Photodisc/Getty Images
  
  Buying, selling or refinancing a home will require an appraisal. An appraisal is an opinion of value presented by a licensed third-party inspector. Lenders utilize appraisal data to safeguard the investment they are making when funding a loan or refinance, to justify the value of a loan. Successful transactions often rest upon an accurate appraisal.
  
  

Lack of Comparable Sales

• Comparable sales measure the market value of a subject property to justify the price. The task of an appraiser is to locate nearby homes most similar to the subject property within a subdivision. The appraiser looks for properties with similar square footage, features, and properties close in age. Complexity can arise when there are no comparables in a nearby radius. If adequate neighborhood comparables are lacking, the appraiser will expand his search area to include acceptable comparables. Yet, even with a search in an expanded area, the appraisal value may not be correct for that subject.
  
  For instance, in areas where homes will average a sale price of $255,000 where comparables are lacking, the appraiser can use sales date from neighborhoods as far as 5 miles away. The more distant neighborhood, however, might average a lower selling price because impacting factors could make it a less desirable locale than the neighborhood of the subject property. When this occurs, the average sales price of the subject property will decrease based on the comparables in a completely different neighborhood. This one skewed value will influence sales in the rest of the neighborhood for the next three to six months in the future, once the sale turns into a comparable for new properties entering the market.
  
  The best way to overcome this type of difficulty is for the appraiser to expand the period of his search, rather than the area. Most lenders require that comparable sales be less than six months old. When adequate comparables are not present, appraisers can expand the period up to 12 months to locate acceptable comparables, keeping property values more in line with expectations.
  
  

Opinion of Value

• While appraisal data is crucial to a sale or refinance, a home appraisal is more of an art than a science. Because an appraisal is essentially an opinion of value, the successful sale of a property lies heavily on one person's opinion. It is important to note that human error can occur. When values come in too low or two high over market, a challenge to the appraisal is in order. Appraisal values on a subject property affect not just that home, but other homes coming on the market in the future.
  
  

Foreclosures

• Having multiple foreclosures in a neighborhood marked at or below market values will detract from the market value of retail properties. When placing a home on the market for sale, the seller needs to do adequate research concerning any loss of value to his property due to an increased foreclosure presence. All neighborhood values are different, and foreclosures affect each area differently. Having a real estate professional perform a market analysis will provide the seller with a better idea of where he stands in the market.