We make it our duty to inform our clients of the latest news, changes, and happenings in the real estate world; below is some general information about the appraisal industry and how it relates to your world. If you can't find the answer here, shoot us a message.
Purchasing a home is the largest, single investment most people will ever make. Be it a primary, secondary residence, or an investment property, the purchase of real property is a complex financial transaction.
So who makes sure the value of the property is in line with the amount being paid?
This is where the appraisal comes in. An appraisal is an unbiased estimate of what a buyer might expect to pay - or a seller receives - for a parcel of real estate, where both buyer and seller are informed parties. To be an informed party, most people turn to a licensed, certified, professional appraiser to provide them with the most accurate estimate of the true value of the property.
What goes into a real estate appraisal? It all starts with the inspection. An appraiser must inspect the property being appraised to determine the true condition of that property. He or she must actually see features to determine quality as well as to ensure that they really exist and are in the condition a reasonable buyer would expect them to be.
The inspection often includes a sketch of the property, ensuring the proper square footage and conveying the layout of the property. Most importantly, the appraiser looks for any readily observable features that would affect the value and marketability of the house; both negatively and positively.
Appraisers most often rely on the sales comparison approach to value to determine the value of a home. Appraisers get to know the neighborhoods in which they practice. They understand the market reactions of buyers to specific features in that market area. The appraiser then researches recent sales in the market area, finds properties which are most similar in appeal to the subject being appraised, and then adjusts these “comparable sales” against the subject. These adjustments represent the typical market reaction based on an analysis of current market trends.
Another approach to value is the income approach. In addition to determining an opinion of market value via the sales comparison approach, an appraiser can also determine the income producing potential for a residential property with one to four units. An analysis of other income producing/rental properties from the subject's area is made and an opinion of market rent is determined. Finally, a gross rent multiplier (GRM) is calculated. The GRM establishes a relationship between the monthly rent with no deductions for vacancy or expenses with its value or sale price.
What's up with the inspection?
At Express Valuation, we typically require 30-45 minutes for an inspection of a typical home. Obviously custom homes will require more time to inspect, while smaller homes may require less. We will begin with an exterior inspection of your home, then move inside where we will take notes of the quality features of your home as well as the condition. We will also take numerous digital pictures for documentation as required by our assigment quidelines. If you have any additional items such as upgrades or updating you would like us to know about, please have that information ready at the time of inspection; it makes our job a bit easier.
I paid who? Who pays you and why is it a different amount?
As a result of the HVCC [see below], unless you hired us directly, you will not be paying us directly either. This provision helps aleviate any undue pressure on the appraiser to reach a value in order to be paid. Most often if you are working with a lender, they will hire us via an appraisal managment company [AMC]. This is a major reason for the fee discrepancy; often the AMC
charges the lender a fee for service, value added or not, then attempts to "low-ball" the appraiser into a lower than market fee. This is a problem in that we, as appraisers, cannot disclose our fees when working with an AMC. We're working on this; though, it is currently a state by state approach.
It's my house, why can't the appraiser give me the report?
Due to the client confidentiality clause appraisers are bound to,
we cannot discuss any non-public information about the appraisal assignment with any other than whom the client specifies. This means, if you can't find it on public record or it is only contained in our report; you will not see it without our client's permission. Though, if you are a borrower, your lender is required by law to give you a copy of the appraisal report at least three days prior to closing; and you always have the option to ask the client to see it; this is usually not an issue.
Welcome to the world of appraisers. It is our sworn duty to remain objective, ethical, and to maintain the utmost in competence regarding our service area. Unfortunately, many appraisers and other real estate professionals chose not to be, well, professional at all. That's where the Home Valuation Code of Conduct [HVCC] comes in.
In an effort to promote objectivity and higher ethical standards in the profesional appraisal practice, Congress passed the HVCC mandating new rules regarding appraiser pressures, appraiser selection and retention, as well as all kinds of rules regarding reporting standards, inspection guidelines, and communication lines.
Having said that, the HVCC is a living, breathing entity that is changing everyday and it would be a daily task to keep this page updated, So, below are a few links for you to read up on to get the latest HVCC news.
