Is An Appraisal Necessary?

If you are buying a new home or refinancing an existing home, a real estate appraisal will most likely be performed as a part of the loan approval process.  But valuations for estate planning, tax appeal, divorce, foreclosure, insurance damage purposes (due to fire, water, weather, etc) are some other reasons for getting an opinion of value from a real estate appraiser.  
 

Hiring The Appraiser

In residential mortgage financing transactions, the lender must be the one to hire the appraiser, either directly or through an Appraisal Management Company (AMC is a third party vendor contracted by a lender to oversee part of, or all of, the appraisal process). 

A homeowner (in a refinance) or a buyer (in a sale) cannot hire the appraiser directly and is not considered a client of the appraiser, regardless of who pays for the appraisal.  In the Uniform Standards of Professional Appraisal Practice (USPAP), the client is defined as “the party or parties who engage, by employment or contract, an appraiser in a specific assignment” (USPAP 2014-2015 Edition Page U2 Line 49).  Since the lender engages the appraiser, the lender is the client.   The relationship is not established based on the person paying for the appraisal service.

The appraiser has confidentiality obligations under USPAP and “must not disclose: (1) confidential information or (2) assignment results to anyone other than: the client; persons specifically authorized by the client; state appraiser regulatory agencies; third parties as may be authorized by due process of law; or a duly authorized professional peer review committee except when such disclosure to a committee would violate applicable law or regulation.” (USPAP 2014-2015 Edition Page U9 Lines 297-304).  Therefore, the appraiser will not discuss the appraisal with the homeowner, borrower or even the real estate agent(s).
 

An Appraisal is not a Home Inspection

      The terms inspection and inspector have been used in the appraising world with various meanings and interpretations.  An appraisal inspection is VERY different than a home inspection. 

For lending purposes, an appraisal is for the lender; home inspection are for the buyer or home owner. The appraiser will provide an opinion of value for a property. An appraisal does not guarantee the property is free of defects or problems.  In a home inspection, a home inspector takes an in-depth look at the home to evaluate the physical improvements (structure, construction, mechanical/electrical/plumbing systems); identifies components that need to be repaired or replaced; and estimates the remaining useful life of the major systems, equipment, structure and finishes.

Setting An Appointment

If you are selling your home, the appraiser generally will contact the real estate agent to schedule the appointment.  If you are refinancing your home, the appraiser will contact you directly to schedule the appointment. 

Appointment

During the appointment, the appraiser will come to your home and complete an interior walk-though, taking notes on aspects of the each room as well as the general condition and quality of the home, create a room layout drawing, and take numerous photos of your house.  The appraiser will also measure the exterior of the home. 

It is the appraiser’s job to report on the condition and other aspects of the property. Appraisers are at your home only a short period of time, and access to all rooms is imperative to a complete and accurate valuation process.          

Often you may want to ask questions of the appraiser when they are conducting the site visit of your property.  The appraiser has confidentiality obligations to the lender and will not be able to answer specific questions about the appraisal process, including whether the home will appraise for a certain dollar amount. 

Now What?

The appraiser has left your home, now what?  The home visit is just the beginning of the appraisers work in providing an appraisal valuation.  After gathering the information on the property and after the appointment, the appraiser is ready to get into the process of developing the opinion of value.

Basic steps to the appraisal process include:

·        Gathering specific information on the property and general information on the area or neighborhood;  

·        Collecting and analyzing data;

·        Reconciling the data and developing a final opinion of value;

·        Communicating the assignment results to the client with a written appraisal form report; 

·        After submission to the client, an underwriter reviews the appraisal report.      

And...

So the appraiser has completed the appraisal process and the report is now with the lender.  Your lender will provide a copy of the completed appraisal with the opinion of the (market) value of your home and whether your home did or did not appraise at or above the contracted sale price or the amount needed for a refinance.  

When the appraised value is less than is desired for a sale or refinance, some people believe or, in some cases, openly state that the appraiser is “killing the deal”.  The appraiser is employed to provide an unbiased professional opinion of value, not to arrive at a predetermined value.  Understand that, simply because the appraised value may be less than you need or believe your home should be valued at, this does not equate to a flawed, incompetent or inaccurate appraisal valuation.