Tips for Consumers:

What Consumers Need to Know About Real Estate Appraisals 

Appraisals are particularly valuable because they are an objective and unbiased source of real estate information. Unlike some other real estate professionals, the appraiser performs a professional service for a fee rather than for a commission contingent on the value conclusion, the approval of a loan or the eventual sale of the property.

To help consumers understand the role of appraisals in the lending process, the Appraisal Institute offers these helpful tips.

  1. Understand the role of mortgage appraisals. Real estate appraisals are critical components in real estate financing and risk management. Lenders order appraisals to get a stronger understanding of risk relating to the underlying collateral offered in a mortgage. Lenders want to know how much that property would bring in an open market so they can ascertain that the loan is well enough supported by the collateral. Mortgage appraisals are not technically provided to confirm a sales price, although they can help both lenders and consumers in making sound financial decisions. It serves neither the lender nor the consumer to enter into a mortgage loan that is more than the value of the property.

  2. Make sure your lender hires a qualified appraiser, such as a designated MAI, SRPA or SRA member of the Appraisal Institute. The best way to combat potential problems with appraisals is to ensure the appraiser hired by your lender is highly qualified and competent. Today, many lenders utilize third party management companies to conduct administrative functions. These firms often seek out the lowest cost service providers, not necessarily the most qualified. You have every right to demand the use of a highly qualified appraiser, someone with field experience in your market and knowledge and experience to handle the assignment properly. A qualified appraiser knows how to conduct a thorough market analysis and make appropriate adjustments if/when distressed sales are used as comparables. Ask the lender for the qualifications of the appraiser and specifically, whether they are professionally designated by a professional appraisal organization like the Appraisal Institute. Remember that your home purchase is one of your most important lifetime investments. The money spent on a quality appraisal is well spent.

  3. Accompany the appraiser during the inspection. Contrary to incorrect interpretations of appraiser independence requirements, appraisers welcome information that would assist development of credible assignment results. Consumers can accompany appraisers when conducting the property inspection and may provide the appraiser with any information they consider important. Ask your lender for permission to do so, and confirm the appointment. Most importantly, take note of whether an adequate inspection is performed. Did the appraiser spend enough time at the property to observe important features or improvements or potential problems? 
 
  1. Ask for a copy of the appraisal report. Even though the appraisal is ordered to help assess lender collateral risk, consumers have a right to, or can obtain a copy of, the appraisal. Specifically, federal law requires lenders provide routine delivery of the appraisal to consumers whether credit is granted, denied, or the application is withdrawn, or alternatively, upon request within 30 days. A mortgage appraisal should not be used for any other purpose.

  2. Examine the appraisal report. Although appraisal review is best performed by qualified appraisers, you can examine the appraisal for potential deficiencies. According to “Appraising the Appraisal: The Art of Appraisal Review,” 2nd edition, common errors in appraisals include: misuse of adjustments to comparables, disregarding special financing and concessions, or miscalculation of gross living area. Ask yourself: do adjacent homes add or detract from the value of the subject property? Is the subject property equal to or lower in price than surrounding homes? Does the floor plan have any functional problems? Does the house (particularly the kitchen and bathrooms) require major remodeling to make it comparable with similar homes in the same price range? Is the number of bedrooms and baths in the home comparable to similar homes in the same price range? Did the appraiser perform an adequate review?

  3. Appeal the appraisal. Or ask your lender to review the appraisal report. Most lenders have appraisal appeal procedures, known as “Reconsiderations of Value.” If you are aware of recent, comparable sales information or items that may not have been available or considered by the appraiser, provide those to your lender.

  4. Ask your lender to order a second appraisal by a qualified appraiser. If problems were found with the first appraisal, you can and should obtain a second appraisal. You should see the importance of hiring a qualified appraiser by now; make sure your lender uses a qualified appraiser the second time, if they did not do so the first.

  5. File legitimate complaints with the appropriate state appraisal board or professional appraisal organizations. Lenders are required under federal law to report legitimate complaints with appropriate regulatory authorities. State appraiser regulatory authorities also accept complaints from consumers and some states accept them anonymously. To contact the appropriate appraisal board, visit https://www.asc.gov/State-Appraiser-Regulatory- Programs/StateContactInformation.aspx. An additional benefit of using a professional designated appraiser is that a referral can also be made to the professional appraisal organization for appropriate ethics and counseling of the appraiser. To make a referral about an Appraisal Institute member, visit the Appraisal Institute Professional Practice Center at:  http://www.appraisalinstitute.org/ppc/ethics.aspx.
Residential appraisals are an essential component of the real estate industry. They provide an unbiased and professional assessment of the value of a residential property, typically conducted by a licensed appraiser. Here are a few perspectives on residential appraisals: 

  1. For potential homebuyers, residential appraisals offer reassurance about the fair market value of a property. They help buyers make informed decisions about the purchase price and ensure they are not overpaying for a property. 
  2. From the seller's viewpoint, residential appraisals help determine a realistic listing price for their property. An accurate appraisal can attract potential buyers, as it provides credibility and supports the asking price. 
  3. Lenders often require residential appraisals to assess the value of a property before approving a mortgage or home loan. This process protects the lender's interests by ensuring that the property's value is sufficient collateral for the loan amount. 
  4. Residential appraisals assist real estate agents in setting appropriate listing prices and negotiating offers. An appraisal report can provide objective evidence to support a listing price, especially in cases where buyers and sellers may have differing opinions on the property's value. 
  5. Residential appraisals are crucial for real estate investors who aim to estimate potential returns on their investment. The appraisal report helps investors assess the property's current value and make informed decisions about purchasing, renovating, or selling residential properties. 
  6. Residential appraisals also influence property insurance rates and property tax assessments. Insurance companies may use appraised values to determine coverage amounts, while tax authorities may reference them to calculate property taxes. 
  7. In legal matters such as divorce settlements or estate planning, residential appraisals provide an objective assessment of a property's value, assisting in equitable distribution or determining an estate's worth. 
It's important to note that residential appraisals involve several factors, including property condition, location, comparable sales, market trends, and more. Appraisers follow standardized methodologies and adhere to industry guidelines to ensure a fair and accurate valuation of residential properties.
How to Prepare for an Appraiser's Visit:
When dealing with appraisals, the Appraisal Institute recommends several key practices to ensure a successful and accurate process:

1. Hire a Qualified Appraiser:
To avoid potential appraisal issues, it's crucial to select a highly qualified and competent appraiser endorsed by the lender. Emphasizes the importance of appraisers with specific market experience and appropriate designations like SRA, which signifies a higher standard of education and experience.

2. Prepare Relevant Property Information:
Contrary to misconceptions about appraiser independence, appraisers welcome information that contributes to a reliable valuation. Homeowners can accompany appraisers during property inspections and provide relevant details.

3. Inform Appraiser of Enhancements:
If considering property improvements before selling, appraisers can advise on projects that offer the best return on investment. Basic upgrades like neutral paint and new fixtures are recommended, followed by renovations that align with community norms, such as kitchen or bathroom updates and curb appeal enhancements.

4. Review the Appraisal Report: Homeowners should review their appraisal reports for factual accuracy, including the property's specifications. Consumers are entitled to a free copy of all appraisal-related data used in the transaction, available before the loan's closing.

By following these practices, homeowners can navigate the appraisal process more effectively, leading to reliable and credible property valuations. For more detailed information, consumers can visit the Appraisal Institute's website.
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Mark Raney Appraisals LLC

Residential Appraiser
Albuquerque-Rio Rancho Appraiser, Education & Experience at Your Service.
12231 Academy Rd NE #301-269 Albuquerque, NM 87111
Phone: 505-856-9894 Fax: 505-856-9898