What is the importance of a professional real estate appraisal?
Because much private, corporate, and public wealth lies in real estate,
the determination of its value is essential to the economic well-being of
society. It is the job of the professional appraiser to determine these
values by gathering, analyzing, and applying information pertinent to a
Unquestionably, the professional opinion of the appraiser, backed by
extensive training and knowledge, influences the decisions of people who
own, manage, sell, purchase, invest in, and lend money on the security of
real estate. And because the appraiser is trained to be an impartial third
party in the lending process, this professional serves as a vital "check in
the system," protecting real estate buyers from overpaying for property as
well as lenders from over lending to buyers.
Appraiser Qualifications? Do you need any?
Many states require all real estate appraisers to be, at a minimum, state
licensed or state certified and have fulfilled rigorous education and
experience requirements and must adhere to strict industry standards and a
professional code of ethics as promulgated by the Appraisal Foundation.
How long does an appraisal take?
The physical inspection of the real property being appraised can take
from approximately fifteen minutes to several hours, depending upon the size
and complexity involved.
After the initial inspection of the property the appraiser spends time
touring through the neighborhood or area. The purpose of this tour is to
search for comparable sales (other properties that are similar to the
property being appraised) that have sold within the last six months to a
year or so. When the field work is finished, the appraiser completes the
report at his office. The report can consist of a short form report
(typically under ten pages) to a long narrative report which can sometimes
exceed a hundred pages. A short form report usually takes between three to
six hours to complete. A narrative report can take weeks or sometimes even
months, depending upon the complexity of the assignment.
Where does an appraiser get the information needed to complete an
The appraiser gets his or her information from a wide variety of sources,
including the local Multiple Listing Service, local tax assessors records,
local real estate professionals, county courthouse records, private public
record data vendors, interviews with sellers and buyers, appraisal data
co-operatives and his or her own personal knowledge or office files from
previous appraisals. The quality and reliability of each piece of
information is considered by the appraiser.
Appraisal VS. Engineer or Whole House Inspections
The appraiser is not a whole house inspector, engineer, architect,
electrician, plumber, or contractor. The appraiser briefly walks through the
house to get an idea of the general condition and room count. An appraisal
is not a guarantee of condition. The appraiser will ask about any visible
problems and those which may not be visible, and will do his/her best to
gauge any impact on value attributable to those problems. You are encouraged
to seek the advice of experts if you have any questions about the structural
or mechanical aspects
What does the appraiser look for?
Typically, an appraiser needs to document the condition of the property,
both inside and out, from the layout and features to degree of modernization
including any updates as well as the overall quality of construction. This
information will help to assist the appraiser throughout the valuation and
The appraiser estimates the square footage (GLA - gross living area), by
measuring the exterior of the home. Non-living areas, such as garages or
covered porches, aren't included in GLA, but are accounted for and
considered in value separately. Finished basements are also calculated
separately from the above-ground GLA. The local market will dictate the
contributory value of the finished basement, which can be influenced by
governmental regulations, the degree of modernization, the quality of the
finish, and other factors.
The appraiser will generally consider only permanent fixtures and real
property. Because many above-ground swimming pools and small sheds are not
permanent structures, they typically usually aren't included in the
valuation. Depending on the specific installation process and local custom,
however, an above ground pool or small shed might be considered part of the
URAR 1004 or 2055 Form Appraisal Reports?
A "Fannie Mae" - URAR form report has many items required by the
secondary mortgage lending market, that are not necessarily needed in a
simple report to find the market value. Both primarily rely on a direct
sales comparison or market approach with a comparison grid (see below) to
determine the market value of the subject property. The lenders report has
many additional arbitrary requirements which have little bearing on the
value found by a report needed for many other purposes. The traditional
"lender" reports need census tract & smsa information for tracking lending
patterns. Some lender reports require a lot of the appraisers effort to
determine and substantiate how much additional rental income is available to
support a higher mortgage. In addition, a great deal of detail is required
to help the lender determine what if any, necessary repairs might be needed
before the property meets their underwriting requirements. All of these
things and much more, may be quite important for a lender, but probably are
useless for most people, who just want to know what a property is worth for
a variety of reasons. Our short form reports are particularly well suited
for helping a seller to price a home for sale, helping a buyer to decide how
much to offer or pay for a home, for estate tax, gift tax, tax grievance,
uncontested divorce & most any other potential use other than for obtaining
a mortgage or in litigation where the report will be used in conjunction
with expert testimony.
What are my rights in the appraisal process?
Under the Equal Credit Opportunity Act, your lender must provide you with
a copy of the appraisal report upon your written request.
What is the difference between a certified appraisal and a brokers
market analysis or price opinion?
A certified appraisal is a formal, impartial estimate or opinion of
value, usually written, of an adequately described property, as of a
specific date, and supported by the presentation and analysis of relevant
data. It is prepared as a result of a retainer, for reliance by identified
parties, and for which the appraiser accepts responsibility. Only a state
certified appraiser can provide a certified appraisal.
A comparative market analysis or brokers price opinion is an informal
estimate of market value, based on comparable sales in the neighborhood,
performed by a real estate agent or broker. You can do your own cost
comparison by looking up recent sales of comparable properties in public
records. These records are available at local recorder's or assessor's
offices, through private companies or increasingly on the Internet through
such sources as Domania or Yahoo etc.
The most important difference between a certified appraiser and broker or
real estate sales agent is their motivation. A brokers typical goal is to
obtain a listing and earn a commission. Although most brokers and agents are
honest some might tell you what they think you want to hear. A certified
appraiser is independent and has no axe to grind. They have no ulterior
motives. Their only concern is to deliver a fair, accurate objective
Is there anything I can do to help the appraisal process?
A survey of the house and property; A deed or title report showing the
legal description; a recent tax bill; a list of personal property to be sold
with the house if applicable; a copy of the original plans & specifications,
The date and purchase price you paid when you purchased the property; a list
of recent improvements & cost as well as any other information you feel may
What is the he appraisal process?
The appraisal process is an orderly and concise method of reaching an
estimate of value. The process has six major steps which include: definition
of the problem, preliminary survey and appraisal plan, data collection and
analysis, application of the three approaches to value, reconciliations of
value indications, final estimate of defined value. This process assists the
appraiser in reaching a sound conclusion. The major phase of this process
involves the application of the three approaches to value which include the
Market Data Approach, the Cost Approach and Income Approach. The three
approaches are reconciled and the value via most applicable approach, in the
opinion of the appraiser, is selected as the final estimate of value. In
most residential appraisals, particularly those of single or two family
dwellings, the direct sales comparison or market approach best reflects the
actions of buyers and sellers and is the most convincing and defendable
approach to value.
How does the appraiser determine the value?
The market or direct sales comparison approach to an estimate of value is
a process of comparing market data, that is, prices paid for similar
properties, prices asked by owners, and offers made by prospective
purchasers or tenants willing to buy or lease. Typically a comparison grid
is used and adjustments are made to each of the comparable sales used for
major differences between the comparable and the subject property for such
items as location, gross living or building area, lot size,
condition/effective age, market conditions, degree of remodeling,
construction quality and significant amenities, i.e.: fireplace, Jacuzzi, in
ground pool, garage, deck, patio, porch and central air conditioning etc. In
the market approach, the appraiser attempts to both gauge and reflect the
anticipated reaction by a typical purchaser to the subject property.
What are comparable sales?
A comparable sale is a property, that is similar to the subject property
in most respects, is located in a similar (nearby) location, and has sold
recently at arms length. The selection of comparable sales is in most
residential appraisals, the single most important determining factor in
establishing value. It is the appraisers responsibility to adequately
research the local real estate market and determine which comparable sales
best represent the value characteristics of the subject property.
What rules must appraisers follow? - Uniform Standards of Professional
Appraisal Standards Board (ASB)
The ASB sets forth the rules for developing an appraisal and reporting its
results. In addition, it promotes the use, understanding and enforcement of
the Uniform Standards of Professional Appraisal Practice (USPAP).
FIRREA requires that real estate appraisals used in conjunction with
federally-related transactions be performed in accordance with USPAP. More
than 80,000 state certified and licensed appraisers are currently required
to adhere to USPAP. USPAP contains the recognized standards of practice for
real estate, personal property and business appraisal.
The authority of USPAP extends beyond FIRREA. Since 1992, the Office of
Management and Budget (OMB) has required federal land acquisition and direct
lending agencies to use appraisals in conformance with USPAP.