How to Read an Appraisal Report

(MoneyWatch)  Dear Ali;
I am buying a home, and as part of the process of getting a mortgage, I paid for an appraisal. How do I read the #$&%@ report?
A: The idea of an appraisal is to value a home by comparing it to "comps" -- that is, the value of comparable homes. If you're selling in a new development where your home's twin sister just sold, that's easy: If that house sold for $300K, your house is probably worth $300K, too. But since there usually isn't a perfect twin, appraisers tend to use three comps -- those are the columns that you see running down the page of the report.

There's an art to picking each comp house. For example, does a house in the next neighborhood over count? The usual answer is "not really" -- but in this time of slow sales, sometimes an appraiser will reach for that. In general, the appraiser will try for houses like your house, and the report is meant to help you adjust their values up or down.

Let's say a house a lot like yours -- and just down the street -- recently sold for $300K, but it had one more bedroom than your house does. Your house is probably worth a little less. Of course, it might not be different by just one bedroom. The other house may also have a newer kitchen. Size, condition, and style all matter.

Ken Stampe of Home Loan DFW also notes that you should look at the number of plus and minus adjustments on each comparable house. The more adjustments there are, the less comparable the property is.

One more thing to put your attention to is the date the comp house was sold. In a flat market, a house that sold six months ago is roughly as good a comp as a house that sold three months ago. But in a market that's moving -- whether up or down -- the more recently a house was sold, the better a comp it is, and the more weight an appraiser will give it as he's figuring the value of your house.