FAQ about real estate appraisal

Frequently Asked Questions:

Do I need an appraisal? My Realtor prepared a market analysis of my home.
The house down the street is listed for $10,000 more than the appraiser valued our house. Why didn't the appraiser use this property to compare with our house?
An appraisal was prepared for our lender - how can we get a copy?
We know that a house just like ours in our neighborhood sold for much more than the value shown in the appraisal. The appraiser didn't mention this house in his report. What can we do?
We told the appraiser about several planned improvements, which will add thousands of dollars to our home's value, but none were mentioned in the report. Why not?
We had an appraisal a year ago, which showed that our house was worth $50,000. Since then, we have spent $10,000 fixing up the property, but the new appraisal shows that our house is only worth $55,000. Shouldn't the house be worth at least $60,000?
My loan officer told the appraiser that our home needed to appraise at $70,000 for us to get a loan. The final report shows a value of $60,000. Why didn't the appraiser follow the lender's instructions?
We are buying a house but are unsure of the condition of some of the plumbing and wiring. If the house "appraises out", does that mean everything is OK?

Q: Do I need an appraisal? My Realtor prepared a market analysis on my home.

A: When you are getting ready to sell your home, knowing what to list it for and what you can expect to sell it for are big questions. A knowledgeable Realtor is the best source for this information.

Realtors will commonly prepare a CMA (Competitive Market Analysis). The CMA compares your home with similar properties in the area that are currently listed as well as those that have recently sold and sometimes with those that have expired from the market. This report will help you understand both what you can reasonably list your property for as well as what the expected sale price will be.

While both the appraisal report and CMA use some of the same techniques and often appear to be doing the same thing, they are prepared for different reasons and answer different questions. A CMA is the Realtor's recommendation of what the property could be listed for to generate buyer interest as well as a prediction of the expected sale price at some future time. By contrast, an appraisal generally uses only past sales to arrive at an opinion of value as of a specific date - usually the date the property was inspected.

For some purposes - mortgage loans, divorce settlements, estates, etc. - you generally need an appraisal. But to determine a market price and a plan to sell your home, a Realtor is the best choice.

Q: The house down the street is listed for $10,000 more than the appraiser valued our house. Why didn’t the appraiser use this property to compare with our house?

A: Appraisers use comparable sales to help determine value. A listing price is “pie in the sky” – it may or may not reflect the actual market value of the property. Appraisers generally only use closed sales to determine market value.

Q: An appraisal was prepared for our lender – how can we get a copy?

A: Although you pay for the cost of the appraisal, the report is prepared for the lender, who owns the rights. The lender generally is required to provide a copy of the report to the borrower. An appraiser is only allowed to release the report or discuss it with others (including the borrowers) by permission from the lender.

Q: We know that a house just like ours in our neighborhood sold for much more than the value shown in the appraisal. The appraiser didn’t mention this house in his report. What can we do?

A: First, tell the lender of the recent sale. The lender wants to make a loan and any new evidence to support a higher value should be brought to their attention. The lender will then contact the appraiser to see if the value in the report can be revised in light of this new evidence.

There are several reasons why the sale may not be included:

	It is possible that the appraiser simply missed this sale when he was researching the market. Sales, especially those that aren't shown in the local multi-list, are sometimes hard to track and confirm.
	Additionally, what sellers tell the neighbors they got sometimes differs from what the public records show.
	Also, a house that appears very similar on the outside could have so many upgrades that the two homes really aren't comparable.

Q: We told the appraiser about several planned improvements which will add thousands of dollars to our home's value, but none were mentioned in the report. Why not?

A: Generally, lenders want to know the value of a property "as is" so they will know exactly what they will be basing the loan on. Proposed improvements may or may not take place and the final opinion of value does not consider them.

However, some appraisals are ordered "subject to" the improvements. In this case, a lender supplies the appraiser with a list of proposed improvements and the final value is based upon these items being completed.

Whether the appraisal is "as is" or "subject to" is determined by the lender.

Q: We had an appraisal a year ago, which showed that our house was worth $50,000. Since then, we have spent $10,000 fixing up the property, but the new appraisal shows that our house is only worth $55,000. Shouldn't the house be worth at least $60,000?

A: The cost of an item is not necessarily what it adds to the value of the whole. The market - what buyers are willing to pay for similar properties - dictates what property is worth.

An example of this would be installing a $10,000 swimming pool in a neighborhood where most of the homes do not have pools. Sale data might indicate that homes with pools sell for $2,000 more than homes without pools. In this case, the market shows that pools are valued at $2,000, even though they cost $10,000 to install.

Q: The loan officer told the appraiser that our home needed to appraise at $70,000 for us to get a loan. The final report showed a value of $60,000. Why didn't the appraiser follow the lender's instructions?

A: An appraisal report is required to show the appraiser's opinion of value. This value must be supported by research and market data. Quite often the appraiser is called upon to defend this report and value either by the lender's underwriter or by peer review.

While it is acceptable to provide the appraiser with the borrower's estimate of the property's value, any directions from the lender that the appraisal must have a certain minimum value (a directed value) are illegal and unethical. Both the lender and the appraiser, if he follows these instructions, could be subject to disciplinary action.

Q: We are buying a house but are unsure of the condition of some of the plumbing and wiring. If the house "appraises out", does that mean everything is OK?

A: An appraisal is not a home inspection. While an appraiser will report on readily observable physical condition, he is not an electrician or a plumber. Your best protection is to get a home inspection and/or a homeowners warranty. Make sure you tell the inspector your concerns so that he can pay particular attention to these items.