Health & Fitness
What does the Appraiser do and how do they come to a value conclusion? Ask The Appraiser Guy!
There are a lot of misconceptions concerning the purpose and process of the appraisal report and the appraiser.
Let's start with the person. According to The Appraisal Foundation, "an appraiser is one who develops and reports an opinion of value on a specific type of property".
This definition leads us to the purpose of the appraisal.The reporting of the OPINION of value is what we call the appraisal. Note, my over exaggerated bold and capped OPINION. I state this because most people believe that valuing a property is a science because it has all those numbers and numbers belong with equations which prove or disprove results. This is not entirely the case for appraisals. Appraisals are more like finely crafted pieces of art. All kidding aside, the reason the appraisal is an art is largely in part because of the amount of emotion in real estate transactions. How do you quantify emotion? You step into your 49th open house and you just know. You KNOW, again over-emphasizing here, this is your home and you are not going to lose it without a good fight to the finish. You are even willing to, dare I say, over-pay for it. Because you have falling for it. Your emotions have made your decision for you. Now don't worry, you are just like the rest of us. We all purchase based on how it makes us feel and how we believe it will make us feel in the future. I do it every day.
The purpose of the appraisal report is primarily for the lenders (aka the Bank). The appraisal simply reports to the bank what similar properties are selling for in the neighborhood. The bank wants to know if similar "emotional" responses are consistent in the neighborhood. Why? Because every purchase of a home defines the market value of your property. Market value, according to The Appraisal Institute, "The most probable price that the specified property interest should sell for in a competitive market after a reasonable exposure time, as of a specified date, in cash, or in terms equivalent to cash, under all conditions requisite to a fair sale, with the buyer and seller each acting prudently, knowledgeably, for self-interest, and assuming neither is under duress."
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For example, currently in the Metro Boston and Woburn area we are seeing some days on market, the number of days a property lists on the open market, at or below one week and we are seeing selling prices above asking prices (list price). The appraisal report must report this and be consistent with what is happening in the current market. This leads us to the process of the appraisal.
The process is similar for most appraisers. The appraiser guy or gal comes to the property for inspection, interior and exterior. They will research and view the neighborhood. They will verify property data with the assessor and/or building inspector. They will research the market trends of the past year paying particular attention to what the current trends are within the past month to 3 months. Then they will research sales in the neighborhood and pull the best available sales that most accurately reflect the subject property in terms of Location, Square Footage, Style, Age, Condition, Bedrooms, Bathrooms, Acreage, Amenities, Topography, View, Date of sale, Type of sale, Days on market, etc... The comparable selection is like 5th grade science class when you dissected the frog saturated in formaldehyde. It's that experience you wish you could remember to forget. After all the differences are valued out there is a range of value from the adjusted comparable sales. The final estimated opinion of value is typically within this range. The range, again, reflects the art of the appraisal because it is an opinion with the range.
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You can go to our website www.theappraiserguy.com to learn more by clicking the links. The document added to this blog is from The Appraisal Institute and helps further distinguish the purpose and process of the appraisal.
