| The average person does not understand what is | | | | home you are interesting in buying in case you |
| involved in a common appraisal. Many people believe | | | | default on the loan and they have to resell it. |
| REALTORS perform appraisals, while others think | | | | Remember that when the bank lends you money, |
| that there are set criteria that standardize appraisals. | | | | they are assuming a huge risk if something happens |
| Still others believe that appraisers produce an | | | | and you are not able to make a payment or two or |
| absolute value for your home, that no part of the | | | | are forced to default on your loan (which leads to |
| process is subjective. Unfortunately, not only are | | | | foreclosure). An appraisal provides many important |
| these assumptions false, but these beliefs can | | | | facts to the lender, like potential time on the market |
| actually lead to some serious disappointments. This | | | | and home value, which help the lender determine |
| article focuses on what exactly is involved in an | | | | whether or not they should loan you the money on |
| appraisal and why someone may want to order an | | | | this particular home. |
| appraisal. | | | | Another time someone might need an appraisal is for |
| The Definition of an Appraisal | | | | insurance purposes. If a homeowner has recently |
| An appraisal is ordered, for whatever reason, to | | | | made improvements, it might be necessary to have |
| establish fair market value of a home. Perhaps | | | | an appraisal done in order to raise the value that the |
| someone is interested in selling their home and needs | | | | home is insured for. For example, last year someone |
| to know a ballpark for setting a price if their home | | | | purchased an older home for below market value and |
| were to sell today. | | | | spent a great deal of time, money, and work |
| The appraisal itself has many different parts. For | | | | renovating the home. However, the home was still |
| example, an appraisal contains very detailed facts | | | | insured for the original purchase price until the |
| about the property, including statistical | | | | homeowner had the home re-appraised, which was |
| measurements, photos, and more. An appraisal might | | | | scheduled 2 weeks out after completion of the |
| also include a list of possible problems that might | | | | renovations. Unfortunately, the home burned down |
| detract from the property's value, like location next | | | | unexpectedly before the homeowner could have it |
| to a landfill or a driveway that enters on a main | | | | re-appraised, and the homeowners suffered a |
| highway. | | | | substantial financial loss. Their time and money was |
| Also within an appraisal, you will find comps, or | | | | not recoverable through insurance claims because the |
| comparable properties, taken from a database of | | | | home was insured for its purchase price rather than |
| homes sold within a specified time period and certain | | | | its full current value. |
| distance from the home. The appraisal might also | | | | Appraisals might also be needed to reevaluate a |
| include an estimate of how long a home might stay | | | | home's value following divorce, estate settlements, |
| on the market before selling as well as a brief | | | | condemnations, tax issues, and more. |
| discussion of local real estate conditions and trends. | | | | Cautions Regarding Appraisal |
| Both of these factors are both difficult to determine | | | | Do not mistake an appraisal for a Competitive Market |
| and not necessarily helpful if the goal is to determine | | | | Analysis or CMA. If you need a CMA, many |
| the selling price of the home under today's market | | | | REALTORS® do provide them for clients in order |
| conditions. | | | | to provide a current value based on market |
| The Job of an Appraiser | | | | conditions and comparable properties. However, a |
| In order to complete appraisals, someone must be | | | | CMA is not nearly as extensive as an appraisal but is |
| licensed and complete specialized coursework | | | | simply the REALTOR'S® opinion. As such, a CMA |
| followed by an apprenticeship. Although the amount | | | | cannot be used as a substitute for an appraisal, and |
| of time invested varies from state to state, Missouri | | | | unless a REALTOR® is licensed as an appraiser |
| requires 120 hours of classroom experience and 2500 | | | | (which might be considered a conflict of interest), |
| hours as an apprentice for appraisers to familiarize | | | | they cannot provide you with a legal appraisal. |
| themselves with local market conditions. Before you | | | | Remember, too, that an appraisal is by no means |
| are certified to appraise on your own, you also must | | | | absolute. If you asked 20 different appraisers to |
| pass a test. If you are buying or selling a home, the | | | | come to your home, you might end up with 20 |
| appraiser you use should be an unbiased third party | | | | different suggested values. It is especially difficult to |
| with no vested interest in your property's value. For | | | | get an accurate appraisal in a town like Rolla, Missouri, |
| example, your direct neighbor might have an interest | | | | because there are fewer comps to draw from as |
| in appraising your home for a higher value, while the | | | | well as fewer comparable neighborhoods. In a larger |
| buyer's father might have an interest in low-balling | | | | city, it is easier to determine a consistent appraisal |
| the appraisal. However, remember that the job of an | | | | value. |
| appraiser is to offer their professional opinion, which | | | | Appraisals are of vital importance to any real estate |
| they do to the best of their ability. | | | | transaction and can make or break a deal. This |
| The Purpose of an Appraisal | | | | makes them extremely important, but there are |
| An appraisal might be needed for a number of | | | | many other important uses for appraisals. Since you |
| different instances, most commonly because a lender | | | | now have a better understanding of an appraisal's |
| requires an appraisal before they will guarantee | | | | purpose and reasons for utilizing one, you are better |
| financing for a buyer. Basically, the lender wants to | | | | equipped as a future or current home owner. |
| make sure that you are paying a fair price for the | | | | |