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 the assessed value of a property should approximate the estimated market value, this often is not the case. Two 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 and the market has changed.
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, may vary depending on current costs for labor and materials, and may have no relationship at all to the market value.
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, among others, its location, condition, size, proximity to facilities and recent sale prices of comparable properties. Most adjustments used by appraisers are neighborhood specific and may vary considerably depending on the neighborhood.
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 including the sale date, location, condition and specific features for example. This is true in good times as well as bad.
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. For example: how many baths are there? Has the house been redecorated? Are there unseen improvements or additions? Are there defects not visible from the street?
Myth: Because consumers pay for appraisals when applying for loans to purchase or refinance real estate, they own the appraisal.
Reality: The appraisal is, in fact, legally owned by the lender - unless the lender "releases its interest" in the document. However, consumers must be given a copy of the appraisal report by the lender, upon written request to the lender, under the Equal Credit Opportunity Act. Request a copy from the lender.
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 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, flood map number, census tract number and a narrative of current real-estate activity and/or market trends in the vicinity.
Myth: Appraisers are hired only to estimate real estate property values in property sales involving mortgage-lending transactions.
Reality: Depending upon their qualifications and designations, appraisers can and do provide a variety of services, including advice for estate planning, dispute resolution (E.G. divorces), appraisals in sales where no mortgage is to be obtained, repossession, zoning and tax assessment review and cost/benefit analysis among other things.
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. A home inspector determines the condition of the home and its major components and reports these findings. Appraisals do not replace home inspections. Home inspectors do not replace appraisers.