What is an appraisal?
An appraisal is defined as an opinion of value by professional appraisal standards (Uniform Standards of Professional Appraisal Practice, see below). Appraisers consider appraising to be both an art and a science. You probably have an opinion of the value of your home or property. Your opinion and a professional appraiser's opinion may be the same. But appraisers are required to be objective and impartial in their analyses and opinions.
A professional appraiser has been trained in appraisal methodology and looks at how your property compares with sales and listings of real estate similar to yours. Appraisers consider many factors such as price trends, amenities, proximity to schools, business districts, freeways, recreational benefits, etc. and prepares a report reflecting the opinions, analysis and conclusions arrived at during the process.
What is an appraiser?
An appraiser is a real estate professional who specializes in providing opinions of value (appraisals). Most appraisers are real estate appraisers, who specialize in real property. Other appraisers specialize in other types of property, such as machinery and equipment. Professional appraisers have taken courses and been supervised during their training period. State licensed and certified appraisers must pass a test and have completed basic education and continuing education. Most states also require a period of supervision, usually 2,000+ hours before being able to do appraisals "on their own."
What do appraisers do?
The property inspection is really the "tip of the iceberg" of the work they do. They research public record information, get a plat map, check the zoning, flood data and research sales and listings of similar properties. During the inspection, they make a drawing of the dwellings and other improvements such as a garages, barns, shops, sheds, etc.. They make notes on physical characteristics such as the quality and condition of buildings and the materials, check the site boundaries against a plat map and look at the adjacent properties.
They select comparable sales and/or listings and take photos of them, contact real estate agents for more information on the sales terms, condition of the properties, etc., reconcile conflicting information from different data sources, and write up the report. Total time? About 6-8 hours on average for a house, in a metropolitan area where data is computerized and plentiful. Appraisers working in rural areas or with less data availability will take longer to complete an appraisal.
Appraisals of income producing property such as rental units, commercial buildings, farms or ranches are much more time consuming as more research and analysis is required. The time can vary from a few days on a small apartment building to many weeks for a large, complex property.
For many years, the appraisal process has been seen by many as mysterious. This is partly the fault of appraisers, as we have not informed the public of what we really do.
Appraisers and lenders - What is the appraiser's role?
Most appraisals are done for mortgage lenders. Most appraisers work for lenders, particularly if they specialize in appraising real estate. The appraiser's role is to provide an objective, unbiased opinion of value "market value" to the lender. Appraisers work for the lenders, not the owners, buyers, or sellers, even if one of them pays for the appraisal by writing a check to the appraiser. Federal banking regulations require that the lender order the appraisal. This was a result of regulations coming from the Savings and Loan scandals in the late 1980s.
What is Market Value?
Market value is defined in The Dictionary of Real Estate Appraisal, third edition and clarified by the Appraisal Institute in June 1992 as:
The most probable price which a specified interest in real property is likely to bring under all of the following conditions:
Consummation of a sale occurs as of a specified date.
An open and competitive market exists for the property interest appraised.
The buyer and seller are each acting prudently and knowledgeably.
The price is not affected by undue stimulus.
The buyer and seller are typically motivated.
Both parties are acting in what they consider their best interest.
Marketing efforts were adequate and a reasonable time was allowed for exposure in the open market.
Payment was made in cash in U.S. dollars or in terms of financial arrangements comparable thereto.
The price represents the normal consideration for the property sold, unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.
What does the appraiser need from me?
No one knows your property as well as you! For proposed constructions, appraisers will need a copy of plans and specs prior to completing the appraisal. If you have copies of deeds, surveys, or other pertinent information that would be helpful to the appraiser, you could also have those things available at the time of inspection. Make a list of all the special features, such as remodeling of buildings, soil types, etc.. Let the appraiser know if a nearby property was listed and sold, as sometimes sales don't show up on the local MLS or other data sources.
Can the appraisal be used for another lender?
Sometimes appraisals can be used for another lender. The original lender must release the appraisal for use with a new lender. Also, the appraisal must be relatively recent, typically no more than 6 months old.
Who "owns" the appraisal?
The appraisal is "owned" by the client who ordered it (engaged the appraiser). If a lender ordered it, the lender owns it, even if you paid for it. If you ordered it for non-lending purposes, you own it.
Who gets the appraisal report?
By federal law, you are entitled to receive a copy of the appraisal from your lender. Unfortunately, appraisers are not permitted to provide you a copy of the appraisal.
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