What is an Appraisal?

An appraisal is a professional appraiser’s opinion of value. The preparation of an appraisal involves:

Research into appropriate market areas
The assembly and analysis of information pertinent to a property
The knowledge, experience and professional judgment of the appraiser.

What is the role of the appraiser?

The role of the appraiser is to provide:

Objective, impartial and unbiased opinions about the value of real property
Assistance to those who own, manage, sell, invest in and/or lend money on the security of real estate

What qualifications are required of appraisers?

At minimum, all states require appraisers to be state licensed or certified in order to provide appraisals to federally regulated lenders. Appraisers have fulfilled rigorous educational and experience requirements and must adhere to strict standards and a code of professional ethics. Qualified State Certified appraisers bring knowledge, experience, impartiality and trust to the transaction. In so doing, they help their clients make sound decisions with regard to real property.

How do appraisers report their findings?

Most appraisals are reported in writing, although in certain circumstances, an appraiser may provide an oral appraisal. A written appraisal report generally consists of:

A description of the property and its locale
An analysis of the “highest and best use” of the property
An analysis of sales of comparable properties “as near the subject property as possible”
Information regarding current real estate activity and/or market area trends.

The value indicated by recent sales of comparable properties, the current cost of reproducing or replacing a building, and the value that the property’s net earning power will support are the most important considerations in the valuation of real property.

In what other areas of expertise can an appraiser provide assistance?

In addition to residential or commercial appraisal – and depending upon an appraiser’s designation and qualifications – he or she may be able to assist with the following:

Estate planning and estate settlements
Tax assessment review and advice
Advice in eminent domain and condemnation property transactions
Dispute resolution-including divorce, estate settlements, property partition suits, foreclosures, and zoning issues
Feasibility studies
Expert witness testimony
Market rent and trend studies
Cost /benefit or investment analysis, for example, what will be the financial return on remodeling
Land utilization studies
Supply and demand studies

Appraisal Assumptions and Facts

Assumption: The appraised value of a property will vary, depending
upon whether the appraisal is conducted for the buyer or the seller.

Fact: The appraiser has no vested interest in the outcome of the
appraisal and should render services with independence, objectivity
and impartiality
Assumption: Appraisers are hired only to estimate real estate property
values in property sales involving mortgage-lending transactions.

Fact: Depending upon their qualifications and designations, appraisers
can and do provide a variety of services, including advice for estate
planning, dispute resolution, zoning and tax assessment review and
cost/benefit analysis.

Assumption: Market value should approximate replacement cost.

Fact: Market value is based on what a willing buyer likely would pay a
willing seller for a particular property, with neither being under
pressure to buy or sell. Replacement cost is the dollar amount
required to reconstruct a property in-kind.

Assumption: Assessed value should equate to market value.

Fact: While most states support the concept that assessed value
approximate estimated market value, this often is not the case.
Examples include when interior remodeling has occurred and the
assessor is unaware of the improvements, or when properties in the
vicinity have not been reassessed for an extended period.

Assumption: Appraisers use a formula, such as a specific price per
square foot, to figure out the value of a home.

Fact: Appraisers make a detailed analysis of all factors pertaining to
the value of a home including its location, condition, size, proximity
to facilities and recent sale prices of comparable properties in the
subject market area.

Assumption: Because consumers pay for appraisals when applying for
loans to purchase or refinance real estate, they own their appraisal.

Fact: The appraisal is, in fact, legally owned by the lender – unless
the lender “releases its interest” in the document. However, consumers
may obtain a copy of the appraisal report from their lender who had
ordered the report under the Equal Credit Opportunity Act.

Assumption: Appraisers are hired only to estimate real estate property
values in property sales involving mortgage-lending transactions.

Assumption: In a robust economy – when the sales prices of homes in a
given area are reported to be rising by a particular percentage – the
value of individual properties in the area can be expected to
appreciate by that same percentage.

Fact: Value appreciation of a specific property must be determined on
an individualized basis, factoring in data on comparable properties
and other relevant considerations. This is true in good times as well
as bad.

Assumption: Consumers need not be concerned with what is in the
appraisal document so long as it satisfies the needs of their lending
institution.

Fact: Only if consumers read a copy of their appraisal can they
double-check its accuracy and question the result. Also, it makes a
valuable record for future reference, containing useful and
often-revealing information – including the legal and physical
description of the property, square footage measurements, list of
comparable properties in the neighborhood, neighborhood description
and a narrative of current real-estate activity and/or market trends
in the vicinity.

Assumption: An Appraisal is the same as a home inspection.

Fact: An Appraisal does not serve the same purpose as an inspection.
The Appraiser forms an opinion of value in the Appraisal process and
resulting report. A home inspector determines the condition of the
home and its major components and reports these findings

Assumption: You generally can tell what a property is worth simply by
looking at the outside.

Fact: Property value is determined by a number of factors, including
location, condition, improvements, amenities, and market trends.

What questions should I ask when selecting an appraiser?

Are you licensed or certified in the state in which you live?
How long have you been in practice?
What level of experience do you have in this particular market and with this type of property?
Are you familiar with property in this neighborhood?
What types of clients have you had (homeowners, estates, lenders, relocation companies)?