There are plenty of of assumptions about property appraisals circulating among home buyers and sellers, and many of them simply don’t hold any merit or truth. Licensed property appraisers must adhere to a code of strict regulations called the Uniform Standard of Professional Appraisal Practices (USPAP), and are congressionally mandated – regardless of location. Here’s a list of nine myths about the appraisal process, and the actual facts behind them.
Myth: An appraisal is the same thing as a home inspection.
Fact: An appraiser provides an informed opinion of a home’s value through a comprehensive appraisal process based on factors including location, condition and improvements, amenities, and market trends. A home inspector determines and reports on the condition of a home by assessing its main components including (but not limited to) roof, electrical, and plumbing systems.
Myth: The appraised value of real estate property can vary, based on whether it is prepared for the seller or buyer.
Fact: An appraiser has no stake or vested interest in the outcome of an appraisal, and is mandated to provide his/her valuation services with impartiality and neutrality.
Myth: Real estate appraisers utilize a generic formula based on ‘price per square foot’ to determine a home’s value.
Fact: Appraisers analyze a number of factors associated with the value of a home. Some of the factors include a property’s location, size, overall condition, proximity to various facilities, and the recent sales price of comparable homes in the market area.
Myth: Property appraisers only estimate real estate/property value when a home sale involves a mortgage or lending transaction.
Fact: Depending on his/her qualifications and certifications, a property appraiser can provide property valuations for several other purposes. These valuations can (and often are) be for the purpose of dispute resolution, divorce, estate planning, bail bond purposes, zoning/tax assessment reviews, Private Mortgage Insurance (PMI) removal, and cost/benefit analysis.
Myth: A property’s market value should equal the replacement cost.
Fact: Market value is based on what a buyer would likely pay the seller for a particular property, factoring in that neither party is under pressure to buy or sell. Replacement cost is a determination of the dollar amount that would be required to reconstruct a property in-kind.
Myth: In a healthy economy when the sales price of homes in a specific area are rising by a specific percentage, the value of individual properties in that area can be anticipated to appreciate along that same percentage.
Fact: The value appreciation of a singular property must be determined on an individual basis. The appraised value includes a variety of relevant components (including the sales price of comparable properties in the area), regardless of economic trends.
Myth: The assessed value of a property should equal the market value.
Fact: Many states actually support this concept; however, this is not always the case. If other properties in the area haven’t been re-assessed for a protracted period, or if the interior of a home has been remodeled and an assessor is unaware of those improvements, the assessed value of a home may very well differ from market the value.
Myth: Consumers own their appraisal because they are the ones who pay for it when applying for a loan to purchase or refinance their property.
Fact: Unless a lender “releases interest” in the document, appraisals are owned by the lender. However, the Equal Credit Opportunity Act allows that consumers can order a copy of the appraisal report from the lender who ordered it.
Myth: A home buyer or seller doesn’t need to be informed about what is in an appraisal document as long as it meets the needs of their lender.
Fact: Consumers should confirm the accuracy of their appraisal document, and if needed, question the results. Appraisals include a legal and physical description of a property, including precise square footage and property lines. They also include a list of comps (comparable properties) in the neighborhood and market trends in the vicinity, making them valuable for future reference.