Some Myths and Realities About
Real Estate Appraisals and Appraisers
Myth: Assessed value should equate to market value.
Reality: 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.
Myth: The appraised value of a property will vary, depending upon whether the appraisal is conducted for the buyer or the seller.
Reality: The appraiser has no vested interest in the outcome of the appraisal and should render services with independence, objectivity and impartiality - no matter for whom the appraisal is conducted.
Myth: Market value should approximate replacement cost.
Reality: 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.
Myth: Appraisers use a formula, such as a specific price per square foot, to figure out the value of a home.
Reality: 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 relating them to market norms within your competitive market.
Myth: 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.
Reality: Value appreciation of a specific property must be determined on an individualized basis, factoring in data on comparable properties and other relevant considerations within its competitive market or sub-market.
Myth: You generally can tell what a property is worth simply by looking at the outside.
Reality: Property value is determined by a number of factors, including location, condition, improvements, amenities, and market trends. Without complete first hand knowledge of a property, and appraiser cannot accurately estimate its market value.
Myth: Because often consumers pay for appraisals when applying for loans to purchase or refinance real estate, they own their appraisal.
Reality: The appraisal is, in fact, legally owned by the lender and the lender is the specific client of the appraiser in any lending situation where Federally Insured funds are involved. However, consumers must be given a copy of the appraisal report, or other documents such as surveys and credit reports, upon written request, under the Equal Credit Opportunity Act if the fee for the service charged to the lender was passed thru to the consumer. The appraiser cannot provide the applicant or home owner with a copy of the report, it must come from the lending instution.
Myth: Consumers need not be concerned with what is in the appraisal document so long as it satisfies the needs of their lending institution.
Reality: Only if consumers read a copy of their appraisal can they know what was said and included in the report. Also, it makes a valuable record for future reference, containing useful and often-revealing information relative to the subject property. It should be noted however, that depending upon the type of report and scope of the appraisal assignment various appraisal products and reports contain different levels of information and analysis.
Myth: Appraisers are hired only to estimate real estate property values in property sales involving mortgage-lending transactions.
Reality: Depending upon their qualifications and level of certification, 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.
Myth: An Appraisal is the same as a home inspection.
Reality: 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 relating the subject property to market norms and expectations. The appraiser inspects the subject property to obtain specific data pertaining to the subject relative to market norms and often suggest specific professional consultation be obtained relating to spefic observable "red flags". A home inspector determines the condition of the home and its specific major components and reports these findings but does not offer, and is not certified to, offer and opinion of value of the subject proeprty.