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Here are some more frequently asked questions (FAQS) about appraisals.
What’s the Difference Between an Appraisal and a Home Inspection?
Although they appear to be similar, appraisals and home inspections are two entirely different things. The purpose of an appraisal is to estimate value, while the purpose of a home inspection is to identify structural and safety issues.
The appraiser’s client is usually the lender, while the home inspector’s client is usually the buyer. Appraisers often specialize in the type of property they appraise, while inspectors may specialize in different parts of the property – roofs, wells, septic systems, wood-destroying pests and hazardous materials for example.
Once an appraiser has finished an inspection they still have a lot of work to do. The appraiser must look over the neighborhood, analyze the local real estate market and select comparable sales and listings. Appraisers have to limit the areas where they work because they need to accumulate and analyze so much information.
A home inspector examines the mechanical systems which make up the building itself – the foundation, walls, roof, heating system, electrical system, plumbing, doors, windows, appliances, etc. When their inspection is complete, they are pretty much done except for typing up the report. Home inspectors can serve a much larger area than appraisers because they don’t require much information outside of the house itself.
The Department of Housing and Urban Development (HUD) created some confusion in September, 1999 when they started requiring their VA and FHA appraisers to conduct what appeared to be home inspections along with their appraisals. Regardless of what HUD may think, appraisers are not home inspectors. Buyers should always hire their own independent home inspector.
What’s the Difference Between a Licensed Appraiser’s and a Real Estate Agent’s Opinion of Value?
There shouldn’t be much difference if the appraiser and the real estate agent are both knowledgeable, competent and impartial. However, if the real estate agent is not a licensed appraiser, they can’t call their opinion of value an appraisal. Instead, the agent might call it a broker’s price opinion (BPO) or a comparative market analysis (CMA).
If the agent is not a licensed appraiser, they don’t have to comply with the Uniform Standards of Appraisal Practice (USPAP) and their opinion can’t be used to support a federally-related transaction such as a home loan. However, real estate agents can appraise property for a wide variety of other purposes.
Real estate agents don’t usually charge a fee for their BPOs or CMAs, because this service can be an effective way to get listings. Although some sellers will only list with the agent who gives them the highest value estimate, experienced agents don’t waste their time with clients who won’t accept a realistic listing price.
In Europe, there is less of a distinction between appraisers and real estate agents because their services are often combined within the same office. In the United States there are people who are both licensed appraisers and licensed real estate agents. The National Association of Realtors(r) even offers a special designation program for realtor(r)/appraisers.
What if someone is both a licensed appraiser and a licensed real estate agent? Although this has not yet been tested in court, it’s a safe bet that the licensed appraiser is required to adhere to the Uniform Standards of Appraisal Practice (USPAP) when rendering any opinion of value, oral or written, point or range, for any reason.
What Should I Do When the Appraiser Arrives?
Although certainly not required, it’s a good idea to get your house in the same condition you would for a prospective buyer. A thorough appraiser wants to know the same things a diligent buyer does. Most appraisers are able to see beyond a messy, cluttered house to the important features that add real value. However, on the subconscious level, the appraiser may associate bad housekeeping with the likelihood of other more serious problems.
If you have a large house or a complicated floor plan, let the appraiser borrow the plans to save time in measuring. Show the appraiser any recent inspection reports, appraisals and the preliminary title report. If you’ve made any recent improvements or repairs, tell the appraiser what you did, when you did it and how much you spent.
If you live in a common interest development, give the appraiser a copy of the CC&Rs, a list of the common elements, the annual report and the monthly or annual assessment. If you have access to your property via a private road, tell the appraiser what sort of road maintenance agreement you have and how much you pay.
Let the appraiser know when your house was built, when you bought it and how much you paid. Provide other details if possible about insulation and soundproofing, and about your heating, water and septic systems. If you know of any recent sales of similar homes in your neighborhood, tell the appraiser what you know. They could be private sales that may not appear on the local MLS.
If there are any problems with your property, let the appraiser know. This includes a leaking roof, failed septic system, unpermitted construction and unpermitted uses. A diligent appraiser will find these things out anyway. Telling him or her up front will just save time.
My Lender Says the Appraiser Must Be On Their Approved List. What Does This Mean?
Approved appraiser lists are a throwback to the time before the early 1990s when there was no state licensing program for appraisers. Lenders maintained “fee panels” as a way to ensure quality work.
Many lenders abused the system by blackballing appraisers who charged too much or took too long to finish reports; or would not take out-of-area assignments, ignore defects or come up with the values the lenders needed. Some lenders even charged appraisers a fee to get on their approved panels. Approved appraiser lists persist today in spite of state licensing for pretty much the same reasons, both good and bad.
Some lists are legitimate, such as HUD’s FHA and VA appraiser lists, which require special expertise and training. Most lender lists and fee panels are disappearing as a result of bank mergers. The nationwide lenders now use appraisal management companies (AMCs) to hire appraisers and monitor the quality of their work.
My Mortgage Broker/Lender Has Found Some Problems With My Appraisal. How Can I Get the Appraiser to Fix Them?
If there are legitimate errors in the appraisal, the appraiser should correct them. Otherwise, start looking for another lender.
Unfortunately, some mortgage brokers and lenders insist that the appraisal be purged of any information which might jeopardize loan approval. This includes references to long marketing times, unpermitted construction, underground storage tanks, unpermitted uses, second residential units, wells and septic tanks, unpaved driveways, the lack of recorded access easements and even unflattering photographs. They are attempting to represent the property as something it isn’t.
Some lenders insist that all comparable sales be virtually identical to the property being appraised, recently sold and close by. This of course is almost impossible in rural areas. These lenders are finding “problems” with your appraisal because they aren’t comfortable or familiar with the type of property you own and don’t want to loan you money.
It’s the appraiser’s job to be the “eyes and ears” of the lender, not to do whatever is necessary to get the loan approved. If your mortgage broker or lender is attempting to obtain a fraudulent appraisal on your behalf they are not doing you a favor. Get another mortgage broker or lender who is comfortable lending on the type of property you own and let the appraiser tell it like it is.
What Do the Letters After an Appraiser’s Name Mean?
The letters that some appraisers put after their names are private designations conferred by more than a dozen appraisal organizations throughout the United States and Canada. These include the Appraisal Institute, the American Society of Farm Managers and Rural Appraisers, the International Right of Way Association, the National Association of Real Estate Appraisers and others.
Some designations are harder to get than others. The most prestigious is the MAI designation awarded by the Appraisal Institute. However, few people other than appraisers know what these designations mean. Some clients still require appraisers with specific designations and undesignated appraisers can’t get certain types of legal and commercial work, especially in urban areas.
The proliferation of appraisal groups and designations is another throwback to the days before appraisal licensing, which occurred in the early 1990s. There is some movement towards consolidating the various appraisal groups into one national organization, similar to what other professions have done.
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