Deconstructing the role of Appraisers

An appraisal is a necessary part of the loan application process. The lender needs an accurate estimate of value, and relies on a third party appraiser to prepare that estimate. The appraiser’s role is different from an inspector.

Just as with all of the other changes, and stricter processes occurring in the real estate industry today, lenders are cracking down on the appraisal process, looking for more and more information, and asking more and more questions.

The appraiser’s job is to look at a property, determine the physical characteristics of it, and then estimate the value based on Market Approach, Cost Approach, and Income Approach. But if a borrower has a low credit score, the lender will likely demand scrutiny of the property beyond the basic evaluating criteria.

Because the real estate industry is so volatile, oftentimes the appraisal information, partially based on historical data, does not keep up, and can result in inadequate comps. Or if no recent comps are available, the appraiser may have to go back in time to see a history of what has sold in the past. A good appraiser will also tour and assess the surrounding neighborhood and factor that in to his/her final number.

Once the appraiser’s fieldwork is done, a roughly 10-page report is pulled together that goes to the home buyer. Things considering in the report include: square footage, number of bedrooms and baths, general condition and appeal. Basement renovations, swimming pools and landscaping don’t tend to add to value, while additions such as bedrooms, bathrooms and garages, will contribute to the final number in a positive way.

The interesting thing about appraisers is that even though the home buyer pays their fee, that doesn’t mean they are working for them. They are in fact working on behalf of the lender.

A reputable appraiser will be licensed by the state in which they are appraising through the Division of Commerce. They don’t have to be bonded, but typically have liability insurance. Visit The Appraisal Institute website for more details about working with an appraiser.

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