How to read an appraisal

Appraisals are not the easiest documents to understand. Here’s how to read one.

You’ve got your appraisal back… and now… uh…. well… how exactly do you read it. As you are leafing through you may see all sorts of things that are a little confusing. This post will help you to dig in on the information that is really important, what you can skip over, and what the most important things actually mean.

First of all, find the top line appraisal value

The first thing to do when you get your appraisal back is to find the top line value. It shouldn’t be too hard to find, as most appraisals will have this on the very first, or maybe the second page of the appraisal. Mine looks like this:

As you have probably already gathered, this is how much the appraiser thinks your property is worth. But, how did they arrive at that number? That’s what you can find in the rest of the appraisal.

The important information in your appraisal document

Appraisals have a shit ton of information in them, and most of it is frankly not pertinent to the overall value of your home. However, there are a few things that you need to understand in more detail to be able to decipher the reasons WHY your home was valued the way it was.

If you haven’t already, I would start with my post on how the appraisal process works. Within that post I describe all of this in detail, but at a high level the appraisal is just looking to understand the objective facts about your home (where is it, how big, etc), along with its quality and condition. Then, the appraisal will also include comparisons or “comps” -other properties that are similar to your home in location, size, condition and quality and some notes about the overall market in the area.

Most of the information in the appraisal should be pretty easy to understand, but the notes on condition and quality can be quite confusing.

Understanding appraisal short codes for condition and quality

Appraisers value condition and quality on two separate scales going from 6 (the worst) to 1 (the best). They are written as C1, or Q6.

Condition relates to the current state that the building is currently in, while quality relates to the materials and construction of the property. In other words, you could have a crappy old single wide trailer (Q5 or Q6), BUT it might be perfectly maintained and show little wear and tear (C2 or C3).

Appraisal condition descriptions

C1 - Recently constructed, not previously. occupied. Structure & components new. No physical depreciation. Includes recycled materials in like-new condition on new foundation. Not for ‘new’ dwellings left unoccupied for extended period w/ no upkeep or maintenance.

C2 - No deferred maintenance, little or no physical depreciation, and requiring no repairs. Most components new or recently upgraded. Outdated components/finishes updated or replaced. Dwelling ‘almost new’ or recently renovated. Similar in condition to new construction.

C3 - Well maintained, limited physical depreciation, normal wear & tear. Some components upgraded.

C4 - Some minor deferred maintenance. & physical deterioration from normal wear & tear. Adequate overall maintenance, requiring minimal repairs to components; needs some cosmetic repairs. Components functionally adequate.

C5 - Obvious deferred maintenance; in need of significant repairs, rehab or updating. Functional utility & livability diminished but dwelling remains useable & functional.

C6 - Substantial damage or deferred maintenance with deficiencies & defects severe. Safety, soundness & integrity of improvements are affected. Needing substantial repairs or rehab, including components.

Appraisal quality descriptions

Q1 - Architect designed unique structures. Exceptionally high workmanship, quality & high grade materials, components, refinements & ornamentation.

Q2 - Custom designed for owner site or in high quality development. Design, workmanship, materials, components, ornamentation are all high or very high quality.

Q3 - Higher quality in above-standard development or on owner site. Significant ext. ornamentation; interiors well finished. Workmanship exceeds acceptable standards. Materials & components upgraded from ‘stock’ standards.

Q4 - Standard or modified building plans. Adequate ornamentation with interior refinements. Materials, workmanship, components are mostly stock/ builder grade with a few upgrades. Meet or exceed applicable building code.

Q5 - Economy of construction with basic functionality. Plain design with minimal ornamentation and limited interior detailing. Mostly stock materials. Upgrades are limited, and stock quality. Meet minimum building code.

Q6 - Basic quality; lowest cost of construction & materials. Possibly built by unskilled people. Utility items may be minimal or non-existent. May have non-conforming add’n. May not be suitable for year round occupancy.

What do condition and quality codes actually correspond to?

OK. Even if you read the codes above, it may still be a little unclear what they actually correspond to, so I have added some visuals to make things easy. First of all, let’s start with a Q1 C1, the best of the best. Cream of the crop.

As you can see, this home is fully custom, with insanely expensive materials and features and it is in new or like new condition, immaculately maintained. Most of us will never own a Q1 C1 or see one on an appraisal because it is basically a state of appraisal perfection… and reality is rarely perfect.

What about something a little further down the line, like a C2 Q3. My own condo fits this description fairly well since it was recently remodeled (so C2) using relatively nice components and materials, but certainly built to a price (Q3).

Don’t take the condition and quality codes personally

I have to admit, when I saw that my newly remodeled condo was a Q3 I was pretty pissed. I had just sunk a bunch of money into the place and I was thinking it was super high quality. But, I realized that a lot of the materials were bought to a price point, and a Q1 really is supposed to be exceptional in every way. The same is true with condition. Since my property was remodeled and not new, there was no way it was going to be a C1.

In summary

Although there is a lot of information in an appraisal, it’s important to focus on the things that are really going to drive the value of your property: it’s location and size, condition and quality, and the comparable properties in the area.