Tips for Consumers:

What Consumers Need to Know About Real Estate Appraisals 

Appraisers have been wrongly accused of prolonging the nation’s real estate downturn by developing value opinions that are below proposed sale prices. Specifically, they’ve been unfairly criticized for including comparable sales in the valuation process that provide opinions that are below the cost to build. Others, including some real estate agents, mortgage brokers and home builders, have used the Home Valuation Code of Conduct and Interagency Appraisal and Evaluation Guidelines as a scapegoat for natural declines in the real estate market.

Credible and realistic value opinions help to stabilize real estate loans and investments, which promotes socially desirable real estate development. 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.
»Improvements worth the investment
»Services & Fees
As the nation’s largest professional association of real estate appraisers, the Appraisal Institute created the helpful tips to let consumers know how to protect themselves and how to avoid unnecessary frustration when selling or buying a home.

"Too many consumers in this struggling real estate market face problems with appraisals when attempting to buy or sell a home," said Appraisal Institute President Joseph C. Magdziarz, MAI, SRA. "But rather than passively endure delays in closing a sale, homeowners and buyers can take proactive steps to avoid pitfalls." 

The Appraisal Institute’s tips encourage homeowners and buyers to:

  • Understand the role of appraisals.
  • Make sure their lender hires a qualified appraiser (such as a designated SRA, SRPA or MAI member of the Appraisal Institute).
  • Accompany the appraiser during the inspection of the property if possible.
  • Request a copy of the appraisal report from the lender.
  • Examine the appraisal report and ask questions.
  • Appeal the appraisal if appropriate.
  • Ask the lender to order a second appraisal by a qualified and designated appraiser.
  • File legitimate complaints with appropriate state board or professional appraisal organizations.
"Credible opinions of value can help to stabilize the real estate market," Magdziarz said. "Appraisals are especially important because they are an objective and unbiased source of information. Unlike others involved in real estate transactions, the appraiser is an independent professional who performs a service for a fee rather than for a commission." 

Magdziarz noted that normal declines in the real estate market have led to increased caution by lenders. That caution has led to delays in completing some real estate transactions. 

"Appraisers today are doing the same thorough, fact-based research and analysis they have always done," Magdziarz said. "Nothing has changed in that regard." 

Magdziarz added that appraisers have been wrongly accused of prolonging the nation’s real estate downturn by developing value opinions that are below proposed sale prices. Specifically, he said, they’ve been unfairly criticized for including comparable sales in the valuation process that provide opinions that are below the cost to build. 

It serves neither the lender nor the consumer to enter into an upside-down mortgage, he noted. Some real estate agents, mortgage brokers and home builders have used the Home Valuation Code of Conduct and Interagency Appraisal and Evaluation Guidelines as a scapegoat for current declines in the real estate market caused by the weak economy and the general oversupply of homes in the market, Magdziarz said.

The Appraisal Institute is a global membership association of professional real estate appraisers, with more than 24,000 members and 91 chapters throughout the world. Its mission is to advance professionalism and ethics, global standards, methodologies, and practices through the professional development of property economics worldwide. Organized in 1932, the Appraisal Institute advocates equal opportunity and nondiscrimination in the appraisal profession and conducts its activities in accordance with applicable federal, state and local laws. Members of the Appraisal Institute benefit from an array of professional education and advocacy programs, and may hold the prestigious MAI, SRPA and SRA designations. For more information regarding the Appraisal Institute, please visit www.appraisalinstitute.org.
MRA-logo AI-SRA

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