What is an appraisal?
Summary: A professionally prepared appraisal is your best protection against overpaying. The appraisal must meet national standards. Whether the value was what you expected or not, a careful reading of the report should help you understand what information the appraiser used and how the appraiser used it to arrive at the opinions and conclusions.
When you transfer/purchase real property between a buyer and seller both have to be very concerned that they’ve adequately documented value and accounted for all component assets. Working with Trust Real Estate Appraisal Services PLC, ensures that you will.
What is an Appraisal?
Detailed: An opinion of a property’s market value (what a typical buyer would pay) performed by a professional licensed or certified appraiser.
Why is an appraisal needed?
- Most commonly ordered by the lender to help decide how much to loan on a property
- Banking rules require it
- It is protection for you, the buyer
- It is important for a homebuyer to know the value of the property before buying
- Might be ordered by a buyer or seller before entering into a contract; NOTE: buyer/seller ordered appraisals cannot be used for lending purposes
- Sometimes ordered to settle a legal matter, such as a lawsuit, estate, or divorce
Are all “opinions” appraisals?
Only Appraisals are prepared by state licensed or certified appraisers and their work must fully comply with the Uniform Standards of Professional Appraisal Practice (USPAP).
What are “Valuations”
- A Valuation is a Non USPAP compliant estimate which can be delivered by anyone.
- Zestimates, or other “What my Home Worth” web sites.
- AVMs (Automated Valuation Models) Computerized valuations that can be used by a lender for a mortgage in some circumstances.
- BPOs (Broker Price Opinions) Prepared by a real estate broker. Cannot be used by a lender for a mortgage.
- CMAs (Comparable Market Analysis) Prepared by a real estate agent to help prospective clients decide an asking price. Cannot be used by a lender for a mortgage.
Who is the appraiser?
- A professional expected by all parties to perform valuation services competently and in a manner that is independent, impartial, and objective.
- Appraisers are generally licensed or certified by the state in which the property is located.
- They have met state and national requirements.
What are the Licensing Categories?
- Licensed Appraiser: May appraise simple Non Complex 1-4 unit residential properties up to less than $1 million in value.
- Certified Residential Appraiser: May appraise any 1-4 unit residential property of any complexity or value over $1 million in value. Most rural, recreational, waterfront and golf front properties are complex.
- Certified General Appraiser: May appraise any property – residential or commercial – of any complexity or value.
Who develops the requirements?
- The minimum requirements for licensed and certified appraisers are set by independent boards of The Appraisal Foundation.
- The Foundation is a private, not-for-profit organization authorized by Congress as the source of appraisal standards and appraiser qualifications.
- Each state may add stricter requirements.
- The requirements are enforced by each state’s appraiser regulatory agency, which can discipline appraisers for violations by fines, suspension, or revocation of licenses.
- The lender (if a Mortgage Backed Security is involved) will typically ask the appraiser to inspect both the interior and the exterior of the property; but sometimes will require only an exterior inspection from the public street – a “drive-by” appraisal.
How is a property inspected?
Appraisers and home inspectors perform different functions. An appraiser looks at a property the way a buyer would, taking into consideration any visual flaws. The appraiser considers the local real estate market and neighborhood. The appraiser’s focus is on estimating a value for the property.
A property inspector is concerned with the improvement’s structural integrity. An inspector normally itemizes defects or make recommendations for fixing problems.
How does the appraiser determine value?
The appraiser: does not “set” what the property is worth – the market does analyzes market data to form an opinion of what value the market would place on the property will use the sales comparison approach and possibly the cost or income approaches to determine an opinion of value.
How does the sales comparison work?
With the sales comparison approach, the appraiser compares recent sales of similar properties in the area to the property being appraised. The appraiser adjusts the comparable sales, or “comps”, for differences to arrive at an indicated value for the “subject”.
Comparable sales; will have preferably sold in the in the past six to twelve months,
should be similar to the property being appraised located in the same or similar neighborhood as the subject property have similar physical characteristics. The comparable sales should be ones that you would have considered buying!
The Appraisal Report
Usually, the appraisal will be reported on a form created by the two government-sponsored
enterprises that buy mortgages from the lender; Fannie Mae and Freddie Mac – the Uniform Residential Appraisal Report (URAR) form 1004. However, the appraisal may be reported on some other form or in narrative format.
Whatever the appraisal report format, the USPAP requirements are the same:
The report must not be misleading (incorrect opinions about the property), and The report must have adequate information for the intended users to understand how the appraiser reached the conclusions and opinions.
The report should accurately describe the property.
This may require narrative comments in addition to the form data blocks. The report should be complete enough for the reader to understand how the appraiser viewed the property – what it’s good and bad points are.
The report should analyze any prior transactions of the property that happened within the past three years. The report should accurately characterize the subject and the comparable sale properties in the Sales Comparison section – often called the “grid”.
Red Flags (that might indicate a poorly prepared appraisal)
- Comparing properties that you would never consider buying to the subject property.
- Using incorrect data.
- Containing errors that could affect the value conclusion.
- Making inconsistent adjustments from one comparable sale to another.
- Using or relying on unsupported conclusions relating to fair housing laws
- Including or omitting information that results in a misleading report.
- Developing a too wide a range of final adjusted values among the comparable sales used.
What do I do if I think the appraisal is inaccurate?
If this is for a Mortgage:
- Contact the lender in writing and describe the problem, as you understand it provides any evidence you may have.
- Ask that the report is independently reviewed or ask for another appraisal PERSIST!
- If this is a buyer, seller, Attorney or other professional- make it clearly known to the appraiser of your issues regarding the appraisal.
What do I do if I think the appraiser was inaccurate?
- You might also contact your state’s appraiser regulatory agency.
- The agency will require you to specifically identify what you believe is incorrect and why – not just that you disagree with the value conclusion. Try to provide factual data.
- If the previous steps do not resolve your concerns, you can contact the:
- Appraisal Subcommittee Hotline http://refermyappraisalcomplaint.asc.gov 1-877-739-0096
- Consumer Financial Protection Bureau www.consumerfinance.gov/complaint 1-855-411-CFPB (2372)
- For more information and a free download copy: “Why Engage a Professional Appraiser” and “A Guide to Understanding a Residential Appraisal” booklets and other information are available at www.appraisalfoundation.org