What is the role of an Appraiser?

Real estate is expensive and changes hands much less frequently than most commodities. For this reason, the market value of any particular property is often difficult to determine. The role of a real estate appraiser is to help their clients to systematically determine the market value of a property, which is one of the first steps in any real estate transaction whether you are a buyer, seller, lender, or other interested party. Here are some further details about the role of a real estate appraiser.

An Appraiser is an Appointed Expert

Appraisers gain their title by being appointed by judicial or quasi-judicial authorities in their local jurisdiction. The services of a skilled appraiser are highly valued by banks, lenders, and other parties who care about the value of property because with their expertise, they are able to wade through the many significant factors that affect the market value of a home such as its size, structure, design, and location, and arrive at a knowledgeable market value estimate.

An Appraiser’s estimate is Broadly Relevant

After determining the value of a property, an appraiser provides you with a written report, which is then used as the basis for mortgage loans, taxes, settling estates, divorces, and more. The report is sometimes also used by a buyer and seller to determine a sale price. However, the most common usage of appraisers in the United States is for mortgage valuations: banks need to know how much your potential home is actually worth on the market before they agree to loan you the money for a mortgage.

In the unfortunate event that you default on your payments and are unable to pay back your debts, your lender needs to know they can sell the property for enough money to cover the amount they loaned you, and they confirm the amount through the work of an appraiser. Because of the importance of accurate appraisals, most appraisers use a standardized form, such as the Uniform Residential Appraisal Report, as a guideline for their valuation.

What Exactly Do Real Estate Appraisers Do?

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A real estate appraisal aims to pinpoint a property’s market value for your lender, as well as other relevant information related to a sale process, such as estimated time to sell and location. Your bank will need an appraisal for the final parts of your mortgage approval process, in order to confirm that your home will at least sell for the amount of your loan in case you default and they need to recover their money.

Remember ? an appraisal is for your bank, not you. Don’t confuse it with a Comparative Market Analysis. Real estate agents use CMAs to help sellers find the best price to list their homes at. A good CMA will probably come up with a value close to the appraisal value, but the two will likely be different due to the different priorities sellers and banks have. So what actually happens in an appraisal?

• An appraisal report will be very detailed. Banks like to have as much information as possible, so the more detail in the report, the more they can be confident in your property’s value.
• The report will include standard information about your potential home, such as size, bedrooms, area, outside property and yard space, and all of the other normal descriptions of a house.
• On top of detailed information about the property, an appraisal report will also contain side-by-side comparisons with similar houses to give an idea of the neighborhood and how reasonable the home’s pricing is.
• If your potential home has poor access or a long private driveway, these will also be included in the report along with anything else the appraiser thinks might be harmful to the bank’s ability to sell the property.
• If there are any serious problems or obvious signs of damage, these will obviously be included in the report. Remember ? an appraiser isn’t a home inspector, so he won’t be actively looking for problems or signs of damage.
• Your appraisal report will also have a rough estimate of how long your home would take to sell, given the real estate market in the area.
• There are usually two ways price is obtained through an appraisal ? either a comparison with similar homes that have sold in the same location, or a cost estimate that tries to place the material price of rebuilding the home.
• Personal approval for a mortgage happens early in the process, but there will always be an escape clause for a bank if the appraisal is unsatisfactory.
• If your lender lets you choose the appraiser, make sure they are on your lender’s approved list or the appraisal may be rejected outright.

Why do you need an Appraisal?

Verification of your on-time payment history via your credit score will be a large factor in qualifying for your mortgage, but due to the hefty size of most home loans, banks require a little extra security. The appraisal comes in as your lender’s extra insurance that he won’t lose money on your loan ? something most banks aren’t fond of.

The appraisal serves to guarantee that the house will sell for enough to cover the cost of your loan in the unfortunate event that you default on your mortgage. In this case, the bank’s last option is usually a foreclosure, in which they sell your house to recoup those losses, so it’s important to them that they’re able to get a decent price.

What does an Appraisal entail?

An appraisal will usually cost less than four hundred dollars, comprising of either a comparison of your potential home with similar houses in the neighborhood, or an evaluation of the property’s replacement cost plus a decent estimate of the land’s value if your house is new. Updated appliances, plumbing, electrical work, roofing, windows, landscaping, and more can all improve your appraisal.

Warning!

An appraisal affects your bank’s profits so they should be carefully directing the process, preventing any mistakes from being made. But in case some choice is left to your discretion, make sure your appraisal is done by one of your lender’s approved appraisers to prevent any appraisal-rejection issues.

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