What to Know About The Process of Hiring a Real Estate Appraiser
What is a real estate appraiser, and what do they do? There are many reasons why you might need the services of a real estate appraiser when you own a home.
Home appraisers are used when buying and selling homes when you're refinancing and at any time when the value of the property 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 no longer pay PMI.
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 all the reasons why you should hire a home appraiser, as well as the things 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 types of properties including, residential, commercial, or agricultural. An appraiser can be classified as an independent contractor or not.
The creation of 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 of the 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. There are 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 the structural and mechanical integrity of a home.
What Qualifications Are Needed to Be a Real Estate Appraiser
In order 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 as well.
In order to become licensed or certified, you will need to 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.
In order to enter the appraisal profession and become a licensed residential appraiser, you will need a minimum of 1000 hours of fieldwork in no less than 6 months.
To become a certified, licensed appraiser, you will need to have a minimum of 1500 hours of fieldwork in no less than 12 months.
To become a certified general appraiser, you'll need to have at least 3000 hours of work in not less than 18 months, of which at least 1500 hours must be non-residential work. 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, recognize 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 how the valuation process conducts their business is due to the Appraisal Foundation. The Appraisal Foundation boards are responsible for setting 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 a residential property or commercial real estate.
The Role of an Appraisal Management Company
When a prospective buyer is going to be getting financing from one of the many financial institutions in the business of 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 there was no monkey business 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 where real estate values would be manipulated home sales were pushed through.
Home loans were often placed that had no business being pushed through. 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 certain appraisal value.
How it Works
When a request comes for an appraisal to be performed, 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 make sure proper appraisal practices are followed.
Once the AMC reviews the appraisal, it is then sent to the mortgage lender. The appraisal must be used unless the lending institution can prove that 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 "fit best." Federal lending regulations now prohibit this. Let's take a look at the most popular reasons to hire a certified appraiser.
It should be understood that buyers and sellers cannot get their own appraiser 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 make sure the property they are lending on has an appropriate value.
The home's value will need to be approved by the lender before a mortgage is granted.
Real Estate brokers play an integral role in providing 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 either for a home buyer or home seller. The purpose will be to get an accurate market value without being influenced in any way.
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 for reducing the loan term or getting 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. There are times when homeowners believe they are unfairly taxed when compared to their neighbors. In cases such as these, they will appeal high property taxes.
On occasion, a home appraiser will be hired to help put together relevant real estate comps that can be presented to the local tax assessor. Consumers often don't know where to begin when it comes to 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 to take 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 will often pay what's referred to as 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. As soon as you can get rid of it, you'll want it removed. Once you have twenty percent equity, you can ask the bank to remove the PMI.
Sometimes homeowners want to be certain 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 an uncommon task 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 will need to 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
If you plan to get a loan and use your home as collateral, an appraisal will be required. Appraisers are asked to provide the mortgage company 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 in which a lending institution will grant a loan modification.
When Someone Files 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 value of the home 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 that have been sold recently, typically within the last 6 months, could make good comparisons.
The homes also need to 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 difficult to find good comparables. Having fewer comps can lead to a 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, 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 fair market value of the property. In addition, the home appraiser is required to give an impartial valuation of a property.
The results of an appraisal are normally seen as being more accurate, thanks to the lack of bias from the appraiser.
Real Estate Appraisal Reports Are Sent to Lenders
Lenders normally 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 ten days from 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 found in the multiple listing service to complete their appraisal.
The listing agent will typically be the one accompanying an appraiser as they visit a home.
When Should You Hire a Real Estate Appraiser?
If you think you need an appraisal, you need to be clear about when you should and shouldn't hire a real estate appraiser.
As mentioned above, there are occasions when using the services of independent real estate appraisers is a good idea. They will give you an accurate picture of what your home is worth, perhaps deciding to refinance more clear-cut.
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 in value, you could have enough equity to stop paying PMI. In fact, I recently had a client in Milford Massachusetts that realized through an appraisal they no longer needed to pay private mortgage insurance.
An appraiser can help you find out if this is the case, though your lender may have certain rules you need to 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 is higher than the valuation of the home.
When is it Better Not to Get Your Own Appraisal?
If a lender is involved in the purchase of the home, getting your own 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 towards 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 be happy to 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 that the buyer will need to find the difference between the value and offer to continue purchasing.
Buyers are often forced to increase their down payment amount or lose the house when the housing market favors home sellers.
Whatever the result of the appraisal, the assessment cost will fall on the buyer or homeowner. The cost of this service will normally 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 a human being that 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. In fact, 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 where I've had to challenge a real estate appraiser's value.
A low appraisal is not uncommon 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 5 independent appraisals done on your home, you can be certain there would be different conclusions reached on the true value.
More often than not, 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. Typically, though, independent fee appraisers 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 going to be 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 on 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 who lacks much experience. The more experienced the real estate appraiser is, the more likely you are to get an accurate assessment of the home's value. It is better to find an appraiser who knows the neighborhood the home is located, as well.
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 an important one 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.
The post How and When to Hire a Real Estate Appraiser appeared first on Massachusetts Real Estate Exposure.
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