The Power of Appraisal

If you have worked with an appraiser, or needed an appraisal performed on a house that you owned, you are in the process of becoming an owner, or you are an appraiser, this is a refresher on the person that performs the appraisal and how they come to the conclusion of the value. It may seem that the appraisal is pivotal to the sale, buying, refinancing, or knocking out PMI (Private Mortgage Insurance); well, it is! In a real estate transactions there are only a few pillars and appraisals are one of those pillars.

Market Value

“An appraisal is an act or process of developing an opinion of value [USPAP 2012-2013].” This opinion is crucial to hit the correct market value of the property; which defined as the most probable price that specific 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 prudently, knowledgeably, for self-interest, and assuming neither is under duress (The Appraisal Institute’s Directory of Real Estate Appraisal, 5th Edition).

As all this can be defined, the most critical part is hitting the appraisal on point, which is not always defined for your house to sell, get the PMI reduced or canceled, refinance, or even buy at a lower price than asking due to a lower market valued home. All we know is that the market gets to decide what your homes value.

The Appraiser’s Role

In real estate transactions, an objective, third-party opinion is often needed to develop an opinion of the market value of real property, so there are no basis opinions that cause the price to go up or down. In these situations there could be a big swing in the price if the buyer, seller, or homeowner has any say in the opinion. The appraiser has a serious responsibility to be correct in evaluating data and not to allow other factors to influence his/her evaluation of a property.

For all intents purposes this person has to be certified/licensed to perform the correct duties of their job. There are four levels, and each level requires more training hours and experience. In any case, the appraiser is there to serve as a professional that needs to perform a task that has no wavering opinion from one side to the other.

Conclusion

There are many positions in the real estate realm and none more essential than another; however, a transaction could be lost, or a person could gain a great advantage all on the knowledge, experience, and training that the appraiser brings to the table. These are calculated valuations that have strict guidelines to meet, which gives confidence in knowing these calculations are not just brought to the transaction from three or four comparable properties pulled off the Multiple Listing Service (MLS) by a Realtor; however, the valuations are more involved with many more calculations taken into account.