What to Know About The Process of Hiring a Real Estate Appraiser
What is a real estate appraiser, and what do they do? You might need the services of a real estate appraiser when you own a home for many reasons.
Home appraisers are used when buying and selling homes, during refinancing, and when the property’s value needs to be found.
So, if, for example, you would like to remove your private mortgage insurance monthly payments, a home appraisal can help. It will help show if you now have enough equity in the property to pay PMI no longer.
Unless a buyer is paying cash, most real estate transactions will have an appraisal conducted by a residential appraiser. Appraisal firms are hired to arrive at an accurate property value.
We’ll take a comprehensive look at why you should hire a home appraiser and what you need to know about appraisals.
What is a Real Estate Appraiser?
An appraiser is engaged in providing an opinion of the value of various types of properties.
Appraisers can specialize in various properties, including residential, commercial, or agricultural. An appraiser can be classified as an independent contractor or not.
Creating a real estate appraisal involves detailed research into specific market areas. Real Estate appraisers also collect and analyze information about a property. They use their experience, knowledge, and professional judgment to form an opinion of value.
Appraisers may be hired to value various property types, including single-family homes, condos, building lots, townhomes, apartment buildings, shopping centers, office buildings, farms, and industrial sites.
A real estate appraiser must always remain impartial and provide objective, unbiased opinions about the value. An appraiser will gather all pertinent information regarding a specific property, analyze said data, and provide a value judgment.
Consumers often ask what exactly an appraiser looks at when providing an appraisal. Many things that can influence the value of a home. Have a look at both of these resources to give you a better understanding of the real estate appraisal process.
It should be understood that while an appraiser will carefully look over a property’s condition, they are not home inspectors. A real estate appraiser should not be relied upon to determine a home’s structural and mechanical integrity.
What Qualifications Are Needed to Be a Real Estate Appraiser
For property appraisers to conduct business with a federally regulated lending institution, they must be licensed. All states require appraisers to be licensed and certified. In addition, some states require certification to provide appraisals to other parties.
To become licensed or certified, you must pass an exam administered by the appraisal board in your state. To become a real property appraiser, it will be necessary to meet the minimum qualification of the Appraisal Qualifications Board.
To enter the appraisal profession and become a licensed residential appraiser, you will need at least 1000 hours of fieldwork in no less than six months.
To become a certified, licensed appraiser, you must have a minimum of 1500 hours of fieldwork in no less than 12 months.
To become a certified general appraiser, you’ll need at least 3000 hours of work in not less than 18 months, of which at least 1500 hours must be non-residential. Many appraisers take their careers to the next level by getting the Appraisal Institute designation.
The real estate industry, including courts of law, financial institutions, investors, and government agencies, recognizes the designation as a sign of excellence. Being a member of the American Society of Appraisers is also a means to elevate your career.
The Appraisal Foundation
Much of the valuation process’s business is due to the Appraisal Foundation. The Appraisal Foundation boards set United States government-authorized qualifications and standards for real estate appraisers.
They also provide voluntary guidance for all real estate valuation professionals, whether it is residential property or commercial real estate.
The Role of an Appraisal Management Company
When a prospective buyer gets financing from one of the many financial institutions granting mortgages, they will require an appraisal.
Mortgage lenders now use appraisal management companies as a layer between themselves and the particular appraiser assigned to the transaction.
After the 2008 real estate market crashed, the federal law was changed, limiting communication between appraisers and lenders. This was done to ensure no monkey business was going on to manipulate real estate values.
A potential buyer can now feel more secure knowing the home’s value will not be manipulated to ensure a transaction takes place.
There was a time when real estate values would be manipulated, and home sales were pushed through.
Home loans that had no business being pushed through were often placed. Appraisers often assigned a higher value to make sure the sale took place.
The home appraisal process is now much more above board. There should never be a vested interest for an appraisal to come in at a specific appraisal value.
How it Works
When a request comes for an appraisal, the management company will assign from a pool of appraisers.
A residential real estate appraiser provides a report based on The Uniform Standards of Professional Appraisal Practice guidelines.
The appraisal management company provides quality oversight to ensure proper appraisal practices are followed.
Once the AMC reviews the appraisal, it is sent to the mortgage lender. The appraisal must be used unless the lending institution can prove it is inaccurate or there was bias on the appraiser’s part.
In years past, lenders could get multiple appraisals and choose the one that “fits best.” Federal lending regulations now prohibit this. Let’s look at the most popular reasons to hire a certified appraiser.
It should be understood that buyers and sellers cannot get their appraisers to satisfy a lender.
Reasons to Hire a Home Appraiser
Buying a Home With Lender Financing
The most common reason a home appraiser is hired is when a buyer purchases a home from a seller with mortgage financing.
The lender granting the loan will want to ensure that the property they are lending has an appropriate value.
The lender must approve the home’s value before a mortgage is granted.
Real Estate brokers provide appraisers with the information they need to complete their evaluation.
Buying or Selling a Home Without Financing
Real Estate appraisers are often asked to provide an opinion of value for a home buyer or seller. The purpose will be to get an accurate market value without being influenced.
While real estate agents or Realtors can do the same thing, exterior influences such as earning a real estate commission could influence the evaluation.
Real Estate agents often tell people what they want to hear to procure business.
An appraiser is in the position of not having a bias towards a particular value.
Refinancing an Existing Loan
When you refinance your mortgage into a new loan, the lending institution usually requires a real estate appraisal. They do this for the same reason as a home purchase – knowing they will provide a loan on a property with a specific assigned value.
Refinancing appraisals are typically done to reduce the loan term or get a better interest rate. Sometimes, when rates drop, homeowners can refinance their homes for no out-of-pocket costs, which can be very appealing. These are known as no closing cost refinance loans.
Challenging a Real Estate Tax Assessment
Nobody wants to pay more property taxes than they should be. Sometimes, homeowners believe they are unfairly taxed compared to their neighbors. In cases such as these, they will appeal high property taxes.
Occasionally, a home appraiser will be hired to help assemble relevant real estate comps to be presented to the local tax assessor. Consumers often don’t know where to begin when challenging home values. An appraiser can help solve this issue by helping with comparable properties.
Getting a Divorce
When a marriage goes south, and marital assets such as a home are at stake, an appraiser is often hired to give an accurate market value. A husband and wife often agree that hiring an unbiased appraiser is a fair route when dividing assets.
If the house is not sold and one of the parties remains in the home, the appraisal can help determine how the parties split any equity. Selling a home during a divorce is quite common.
Removing Private Mortgage Insurance (PMI)
When you buy a house with less than a 20 percent down payment, you often pay what’s called PMI. Private mortgage insurance protects the lender if the borrower defaults on the loan and foreclosure needs to be instituted.
PMI is an expensive fee that no borrower wants to pay. You’ll want it removed as soon as you can get rid of it. Once you have twenty percent equity, you can ask the bank to remove the PMI.
Sometimes, homeowners want to be sure they have reached the twenty percent threshold and ask an appraiser to conduct an appraisal.
Settle an Estate
Helping to settle an estate is not uncommon for a real estate appraiser. Not only is an appraisal required for the deceased’s final tax return, but it is also used to help divide the home’s equity among rightful family members.
Sometimes, the appraiser must provide a value based on the date of an owner’s death. Other times, the current market value will be needed.
Getting a Business Loan
An appraisal will be required if you plan to get a loan and use your home as collateral. Appraisers are asked to provide the mortgage company with an up-to-date real estate evaluation.
Loan Modifications
In periods of economic downturn, mortgage modifications become far more common. Real Estate appraisers are often asked to provide appraisals for homes where a lending institution will grant a loan modification.
When Someone Files for Bankruptcy
Nobody wants to think about bankruptcy, but it does happen. When you file for bankruptcy, the court in charge will need to see the value of all your assets. A certified real estate appraisal takes care of your home’s value.
These are all excellent examples of why you may need the services of a real estate appraiser.
What is the Real Estate Appraisal Process?
The idea of an appraisal is to find the home’s value from an unbiased source. The home appraiser is licensed and experienced in assessing real estate valuations.
While the process used by real estate appraisers is similar to a comparative market analysis (CMA), they shouldn’t be confused.
When selling a home, your real estate agent might use comparative sales data to judge the right price to market your home.
A comparative market analysis will include the following factors:
- The condition of the home
- The properties appearance
- Square footage
- Lot size
- Number of bedrooms and bathrooms
- Age of the home
- Upgrades
Recent Sales Are The Most Impactful Part of a Real Estate Appraisal
Properties sold recently, typically within the last six months, could make good comparisons.
The homes must also be located near the client’s property, ideally within a few miles. Recent sales of similar properties hold the most weight in an appraisal.
The appraisal report, however, could also consist of pending sales, contingent sales, and homes currently for sale.
For homes that are in rural locations, it can be more challenging to find good comparables. Fewer comps can lead to less accurate comparative market analysis and real estate appraisal.
A real estate appraisal will do a similar thing to find the home’s valuation, but they will go further than a Realtor. A real estate appraiser will usually visit the home to assess the condition, take photos and measurements, and evaluate the neighborhood. The information should give them a better understanding of what the home is worth and a more accurate valuation.
The goal is to give an expert opinion of the property’s fair market value. In addition, the home appraiser must give an impartial property valuation.
The results of an appraisal are commonly seen as being more accurate, thanks to the lack of bias from the appraiser.
Real Estate Appraisal Reports Are Sent to Lenders
Lenders usually need appraisals before a mortgage is approved, but buyers and homeowners can also hire an appraiser. The real estate appraisal report with all the appraiser’s work will be submitted to the buyer’s lender, typically within a week to two weeks of visiting a property.
Professional real estate appraisers use a form called the Uniform Residential Appraisal Report. Data entry is used from public records and information from the multiple listing service to complete their appraisal.
The listing agent will typically accompany an appraiser as they visit a home.
When Should You Hire a Real Estate Appraiser?
If you need an appraisal, you must be transparent about when and shouldn’t hire a real estate appraiser.
As mentioned above, there are occasions when independent real estate appraisers’ services are a good idea. They will give you an accurate picture of what your home is worth, perhaps deciding to refinance more clearly.
If you are getting ready to sell your home, an appraisal report can help you find the correct price to list the property for.
If your home has increased, you could have enough equity to stop paying PMI. I recently had a client in Milford, Massachusetts, who realized through an appraisal they no longer needed to pay private mortgage insurance.
An appraiser can help you determine if this is the case, though your lender may have specific rules you must follow.
An appraisal can also help if you are filing for bankruptcy and have a second mortgage you want to discharge. This might be possible if your total debt exceeds the home’s valuation.
When is it Better Not to Get Your Appraisal?
If a lender is involved in purchasing the home, getting your appraisal isn’t advised. The lender is unlikely to accept the result of either a buyer’s or seller’s appraisal report. Mortgage companies and banks consider it biased toward the person’s views ordering the appraisal, potentially making the result inaccurate.
Lenders prefer to order the appraisal so that the report doesn’t have this bias. The appraisal result will show the lender whether the buyer’s offer is in line with the value of the home or not.
If the value is around the price offered or even more, the lender will happily loan the money to the homebuyer. On the other hand, if the value is below the buyer’s offer, there could be problems.
The lender or bank will not want to lend more to the borrower than the home is worth. This means the buyer must find the difference between the value and offer to continue purchasing.
Buyers are often forced to increase their down payment or lose the house when the housing market favors home sellers.
Whatever the appraisal result, the assessment cost will fall on the buyer or homeowner. This service will usually be paid as part of closing costs, though it can often be added to the loan amount.
Is a Real Estate Appraiser Always Accurate?
Sometimes, consumers think that all real estate appraisals are accurate. Thinking an appraisal is gospel is foolish. An appraisal is conducted by someone who is as fallible as the rest of us. They make mistakes just like you, and I do.
Never assume that the value given by a real estate appraiser is actually what a property is worth.
You may find yourself in a position where you need to dispute the value given by an appraiser. Over the years, there have been a handful of times when I’ve had to challenge a real estate appraiser’s value.
A low appraisal is typical when the real estate market changes abruptly, for example, in an extreme seller’s market where values increase rapidly due to bidding wars.
If there were five independent appraisals done on your home, you can be sure there would be different conclusions reached on the actual value.
Often, an appraiser will come in at the purchase price.
How Much Does a Real Estate Appraisal Cost?
There are a few factors that determine the cost of an appraisal. The larger the home, the more you can expect to pay, and higher costs in some states. However, independent fee appraisers typically charge between $300 and $500.
A commercial appraisal has a much different cost schedule. The appraisal fee for a commercial property is far more costly. Commercial appraisers charge anywhere from $2000-10,000. Larger-scale commercial projects can command between $10,000-$25,000.
Should You Choose a CMA Instead?
In many situations, the cost of hiring a home appraiser isn’t worth it. Instead, a CMA from a real estate agent might provide enough information for your needs.
Though the appraiser will provide a more accurate assessment of the home’s valuation, a comparative market analysis might be good enough.
What to Look For When Hiring Home Appraisers
If you decide an independent home appraisal is necessary, you shouldn’t just hire the first appraiser you find. Even if you have been recommended an appraiser, you should make some checks first.
Check what other customers of the appraisal service think about it. Do they have complaints at the Better Business Bureau, or is their customer feedback very positive? You should also make sure the appraiser is properly licensed before you decide to hire them.
If you make checks like this, you should avoid hiring someone without much experience. The more experienced the real estate appraiser is, the more likely you will get an accurate assessment of the home’s value. It is better to find an appraiser who knows the neighborhood where the home is located.
Real Estate Appraisers Near Me
If you don’t know where to start when finding an appraiser, go to Google and do an online search. Searching for home appraisers near me or real estate appraisers near me should generate some results for you to research.
If you are friendly with a real estate agent, they would also be a good referral source for a real estate appraiser. Real Estate agents are in contact with appraisers every month.
Final Thoughts
The role of an appraiser is vital in a real estate transaction. Understanding the accurate value of a property is paramount for many parties. As you have discovered, appraisers can be hired for numerous reasons.
Hopefully, you now have a much better understanding of what you need to know about real estate appraisers.
About the Author: Bill Gassett, a nationally recognized leader in his field, provided information on real estate appraisers. He is an expert in mortgages, financing, moving, home improvement, and general real estate.
Learn more about Bill Gassett and the publications he has been featured in. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-625-0191. Bill has helped people move in and out of Metrowest towns for the last 38+ years.
Are you thinking of selling your home? I am passionate about real estate and love sharing my marketing expertise!
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