Some Myths and Realities About
Real Estate Appraisals and Appraisers

Myth: The primary purpose of an appraisal is to make sure the buyer does not pay too much for a house.  
Reality: The primary purpose of an appraisal is to assist the Lender in their underwriting decision and to protect the Lender from unknowingly lending more for the property than it is worth. 

Myth: Assessed value should equate to market value.
Reality: While most states support the concept that assessed value approximate estimated market value, this often is not the case. Examples include when interior remodeling has occurred and the assessor is unaware of the improvements, or when properties in the vicinity have not been reassessed for an extended period.

Myth: The appraised value of a property will vary, depending upon whether the appraisal is conducted for the buyer or the seller.
Reality: The appraiser has no vested interest in the outcome of the appraisal and should render services with independence, objectivity and impartiality - no matter for whom the appraisal is conducted.

Myth: Market value should approximate replacement cost.
Reality: Market value is based on what a willing buyer likely would pay a willing seller for a particular property, with neither being under pressure to buy or sell. Replacement cost is the dollar amount required to reconstruct a property in-kind. Depreciation will be a factor if the house is not brand new.

Myth: Appraisers use a formula, such as a specific price per square foot, to figure out the value of a home.
Reality: Appraisers make a detailed analysis of all factors pertaining to the value of a home including its location, condition, size of the lot, size of the house, it's design, it's appeal, proximity to facilities, employment, shopping, schools and recent sales prices of comparable properties. Price per square foot is sometimes a good general indicator when you are comparing highly similar properties, however properties are often substantially different.  Price per square foot is only one of many indicators that appraisers will consider.  The market grid on the back of the URAR has well over 35 spaces for adjustments for different factors affecting value, price per square foot is only one of them. 

Myth: If two houses have different prices per square foot, the one with the higher price per square foot will be the best quality. 
Reality: If the houses are new and very close in size, this could be correct, however, certain factors cost the same to build regardless of the size of the house.  For example a two or three car garage, driveway and landscaping will cost generally the same to build regardless of the house size.  If one house is larger, the cost is spread over a larger square footage which could result in a higher quality house having a lower cost per square foot.  Appraisers make a detailed analysis of all factors pertaining to the value of a home including the level and quality of the components. 

Myth: In a robust economy - when the sales prices of homes in a given area are reported to be rising by a particular percentage - the value of individual properties in the area can be expected to appreciate by that same percentage.
Reality: Value appreciation of a specific property must be determined on an individualized basis, factoring in data on comparable properties and other relevant considerations. This is true in good times as well as bad.

Myth: You generally can tell what a property is worth simply by looking at the outside.
Reality: Property value is determined by a number of factors, including location, condition, improvements, amenities, and market trends.  It is not uncommon to find a house that is very nice outside, to be in rough condition inside and vice versa.  The exterior does not always reflect the true condition.  That is why a full appraisal is always more reliable than a drive-by. 

Myth: Because consumers pay for appraisals when applying for loans to purchase or refinance real estate, they own their appraisal.
Reality: The appraisal is, in fact, legally owned by the lender - unless the lender "releases its interest" in the document. However, consumers must be given a copy of the appraisal report, upon written request, under the Equal Credit Opportunity Act.  This copy MUST be obtained directly from the Lender, not from the appraiser.

Myth: Consumers need not be concerned with what is in the appraisal document so long as it satisfies the needs of their lending institution.
Reality: Only if consumers read a copy of their appraisal can they double-check its accuracy and question the result. Also, it makes a valuable record for future reference, containing useful and often-revealing information - including the legal and physical description of the property, square footage measurements, list of comparable properties in the neighborhood, neighborhood description and a narrative of current real-estate activity and/or market trends in the vicinity.  An appraisal can also point out areas of concern which, if left unattended, could prove more costly to fix later on. 

Myth: Appraisers are hired only to estimate real estate property values in property sales involving mortgage-lending transactions.
Reality: Depending upon their qualifications and designations, appraisers can and do provide a variety of services, including advice for estate planning, dispute resolution, zoning and tax assessment review and cost/benefit analysis.  Many appraisers also do consultations and can answer questions to help you prepare to place your house on the market, for example, would it be more cost effective to paint the house or install a new vinyl exterior?  Should I replace the carpet or provide a carpet allowance?  The answers may surprise you. 

Myth: An Appraisal is the same as a home inspection.
Reality: An Appraisal does not serve the same purpose as an inspection, and is not a substitute for a professional home inspection. The Appraiser forms an opinion of value of the property in the Appraisal process and resulting report. A home inspector determines the condition of the home and its major components and reports these findings.