A real estate appraiser is a professional that is licensed, and certified by the state. You cannot have your property “appraised” by some who is not licensed, or is not an apprentice of a licensed professional. However a broker can give a Broker’s Price Opinion (BPO), also any real estate professional can give you a Competitive Market Analysis (CMA).
- CMA‘s are extremely useful when trying to figure out a listing price, they are reports that consist of information gathered from properties that, have recently sold, are currently on the market, under-agreement, or did not sell and their listing have become expired. The comparative properties used are similar in their, location, property size, and amenities available on the property.
- BPO‘s are a process used by a real estate broker in order to derive an estimated valuation of the property, and determine a listing price.
So then what exactly is an appraisal?
“An appraisal is an opinion of value based on supportable evidence and approved methods. An appraisal report is an opinion of market value on a property given to a lender or client with detailed market information. An appraiser is an independent professional trained to provide an unbiased opinion of value in an impartial and objective manner, following an identified appraisal process. Appraising is a professional service performed for a fee; it is a breach of ethics and accepted practice to collect a commission for an appraisal based on the value of the property appraised.”
~Modern Real Estate Practice 19th Edition
Basically an appraisal is factual information about the current real estate market to help determine a properties market value. Which is an opinion of value by an appraiser and is not a determination of market price.
- Market Value– is the most likely price a property will sell for in an open competitive market under conditions of a fair sale.
- Market Price– the price a buyer is will to pay, and a seller is willing to sell a property with the current market conditions.
When do you need an appraisal?
An appraisal is needed when a property is required to have an estimation of value. Typically this is when applying for a loan to either purchase, or refinance a home. It may also be required to appeal a property tax assessment, for insurance purposes, during probate and estate settlements, as well as other miscellaneous issues.
What happens during an appraisal?
An appraiser will do a walk-through of the home and property. Oftentimes they till sketch out a floor plan, take photos, and make notations of feature/ amenities that will affect the homes value. Appraisers will also be looking for any building or safety violations that may be on the property (a home appraisal is not the same as a home inspection and they cannot be interchanged) If they find any, the homeowner might have to fix them before a lender will approve a loan. Certain loans will require that the issues be addressed, while others may not. Also some loans such as FHA and VA loans have certain, unique requirements such as, peeling paint, rot, or other broken items like windows, that must be repaired in order to achieve those loans.
Who pays for, and how is an appraisal obtained?
The cost of an appraisal for a sale is the responsibility of the purchaser, for other needs where the home is not being sold it is the responsibility of the homeowner. Sometimes it needs to be paid up front, and sometimes it is covered in the closing costs. Average costs for an appraisal run from $375-$500, however additional fees may be required if an appraiser needs to make multiple trips to a property.
The lender will order an appraisal to be done typically once the P&S has been signed, and oftentimes they will provide the homeowner with a list of approved appraisers to choose from. When choosing an appraiser it is critical to pick someone who is local to the area of the property. Markets can drastically change even within a few miles, so in order to get an accurate value this is best option It is very important that the appraisal be completed and satisfactory prior to the loan commitment date, otherwise the closing cannot take place.
What happens when the loan is higher than the appraisal?
If the appraisal is higher then the loan amount nothing needs to be done buy the buyer. However if the offer is higher than the appraisal the lender will require that the difference be paid towards the down payment, that way the loan amount will be equal to the appraised amount. A lender will not give loans for more than the value of the property. The other options are to renegotiate the price with the seller, or walk away if you feel the deal is not worth the added costs.