5 Things You Didn’t Know About Your Real Estate Appraisal
by Matthew Roberts, Certified General Real Estate Appraiser
October 2023
1) It’s not a guess.
The appraisal is an opinion of value based on the most recent comparable data available. While it is an opinion, it must be a reliable result based on credible analysis and methodology. This is why the appraiser asks lots of questions. Having the most relevant information is critical to developing a good real estate appraisal.
2) It’s not set in stone.
If you believe your appraiser is mistaken, by all means say so. If you are aware of a comparable property which sold recently, which the appraiser may have missed, please share the information. The appraiser can analyze it and determine if an adjustment is needed.
3) If it’s for the bank, it might not be for you.
Bank Appraisals are not completed for the benefit of consumers or home buyers. They are owned by the bank and used only for their lending and collateral risk decisions.
They cannot be used by any other party, including the borrower, or for any other use. And they may not satisfy the appraisal contingency in the purchase contract unless correctly identified.
The natural response by the borrower is “But I paid for it!”
Don’t believe me about this? Listen to what the American Bankers Association has to say about the bank appraisal:
“Although there may be some ancillary consumer benefit to a bank-ordered appraisal, the reality is that, in real estate transactions, the appraisal is not ordered for the benefit of the consumer, but rather, for the benefit of the lender. Consumers may, and are often advised to, obtain an appraisal for their own use as outlined in the Purchase and Sale agreement.” –American Bankers Association
What does that mean for the borrower?
4) The bank’s appraisal may not satisfy the appraisal contingency in your purchase agreement.
Consumers and investors often rely on the appraisal ordered by the bank to make a purchase decision. However, in the bank’s appraisal, the bank is the sole intended user of the report, and not the contract buyer or seller.
Because the bank appraisal is the bank’s alone, it may not satisfy the appraisal contingency if one is specified in the purchase contract. This is why it is important for the buyer to obtain an appraisal to satisfy their own due diligence.
5) The appraisal fee is not based on the value.
It is easy to overpay for a property, and no one will stop buyers from doing so. The only protection for the real estate consumer comes in the form of an appraisal performed by a licensed appraiser acting as an unbiased third party.
The appraiser’s fee is based on the time required and complexity of the project. An appraiser is the only party involved in the transaction that is not commission-based. Every other party involved only gets paid based on your decision to buy.
Getting an independent appraisal is the only way to accurately determine the market value of your real estate investment. Tell your real estate agent and lender, “I need to get my own appraisal,” and base your purchase and investment decisions on your own information. If that is something you need, we can help you with that. Contact us today.
