Some Myths and Realities About
Real Estate Appraisals and Appraisers
Myth: Assessed value should equate to market
Reality: While most states support
the concept that assessed value approximate estimated market value,
this often is not the case. Examples include when interior
remodeling has occurred and the assessor is unaware of the
improvements, or when properties in the vicinity have not been
reassessed for an extended period.
Myth: The appraised value of a property will
vary, depending upon whether the appraisal is conducted for the
buyer or the seller.
Reality: The appraiser has no vested
interest in the outcome of the appraisal and should render services
with independence, objectivity and impartiality - no matter for
whom the appraisal is conducted.
Myth: Market value should approximate
Reality: Market value is based on
what a willing buyer likely would pay a willing seller for a
particular property, with neither being under pressure to buy or
sell. Replacement cost is the dollar amount required to reconstruct
a property in-kind.
Myth: Appraisers use a formula, such as a
specific price per square foot, to figure out the value of a
Reality: Appraisers make a detailed
analysis of all factors pertaining to the value of a home including
its location, condition, size, proximity to facilities and recent
sale prices of comparable properties.
Myth: In a robust economy - when the sales
prices of homes in a given area are reported to be rising by a
particular percentage - the value of individual properties in the
area can be expected to appreciate by that same percentage.
Reality: Value appreciation of a
specific property must be determined on an individualized basis,
factoring in data on comparable properties and other relevant
considerations. This is true in good times as well as bad.
Myth: You generally can tell what a property is
worth simply by looking at the outside.
Reality: Property value is
determined by a number of factors, including location, condition,
improvements, amenities, and market trends.
Myth: Because consumers pay for appraisals when
applying for loans to purchase or refinance real estate, they own
Reality: The appraisal is, in fact,
legally owned by the lender - unless the lender "releases its
interest" in the document. However, consumers must be given a copy
of the appraisal report, upon written request, under the Equal
Credit Opportunity Act.
Myth: Consumers need not be concerned with what
is in the appraisal document so long as it satisfies the needs of
their lending institution.
Reality: Only if consumers read a
copy of their appraisal can they double-check its accuracy and
question the result. Also, it makes a valuable record for future
reference, containing useful and often-revealing information -
including the legal and physical description of the property,
square footage measurements, list of comparable properties in the
neighborhood, neighborhood description and a narrative of current
real-estate activity and/or market trends in the vicinity.
Myth: Appraisers are hired only to estimate
real estate property values in property sales involving
Reality: Depending upon their
qualifications and designations, appraisers can and do provide a
variety of services, including advice for estate planning, dispute
resolution, zoning and tax assessment review and cost/benefit
Myth: An Appraisal is the same as a home
Reality: An Appraisal does not serve
the same purpose as an inspection. The Appraiser forms an opinion
of value in the Appraisal process and resulting report. A home
inspector determines the condition of the home and its major
components and reports these findings.