The Appraisal Process: Why You Don’t Need One-Yet
An appraisal is an estimate of an object’s worth or value. Appraisals are used to determine the value of personal property as well as real property. For example, the value of jewelry can be estimated by having an appraisal done just as the value of land or houses can be determined by having an appraisal done. In Income Property Valuation, William N. Kinnard defines the appraisal process this way:
An appraisal is a professionally derived conclusion about the present worth or value of specified rights or interests in a particular parcel of real estate under stipulated market conditions or decision standards. Moreover, it is (or should be) based on the professional judgment and skill of a trained practitioner. Its conclusions should be presented in a thoroughly logical and convincing way to a client or an interested third party who requires the value estimate to help make a decision or solve a problem involving the real estate in question.
Although an appraiser can provide you with a professional opinion of the value of your house, in my opinion, it really isn’t necessary—at least not until your house is sold. Real estate agents list houses for sale every day without the aid of an appraiser. A comparative market analysis, like an appraisal, is an estimate of value. While an appraiser’s estimate of value may be more thorough and comprehensive than that of an agent’s derived through a CMA, it is still just an opinion of value. Some appraisers tend to render very conservative estimates, while others are a bit more aggressive.
Just a few days ago, I arranged to have an appraisal done on eight different properties that I am purchasing and will close on next week. These are new construction projects and, as a builder, I know the market in this area as well as, or better than, anyone else. The bank I am working with hired a new appraiser to render an opinion on the value of each of these properties. As it turns out, his estimate of value was low on all but one of the properties. No matter how much I tried to convince him otherwise, he was not changing his opinion. This appraiser’s report will have an adverse effect on the amount of money I can borrow for each of these properties. As far as I am concerned, my opinion of the value of these properties is every bit as valid as his is, if not more so, because I have bought and sold in these areas many times. Regardless of what my opinion is, however, the bank is required to rely on the professional judgment of a licensed appraiser.
One disadvantage of hiring an appraiser is that the cost of an appraisal can range from about $250 to as much as $500, depending on the area you live in. In my experience, appraisers tend to be more conservative with their estimates of value while real estate agents may be a bit more aggressive. Regardless of who renders an opinion, remember that it is just than, an opinion. The appraisal process, while somewhat objective, is also largely subjective. That means that the estimate of value can vary depending on any number of factors. For example, if two appraisers use two different sets of houses, or comps, to render an opinion of a house, then they are almost certain to come up with two different values for the same house. In short, for the purpose of placing your house on the market for sale, a CMA is all that is needed. When your house eventually sells, however, the buyer’s lender will require an appraisal for the purpose of supporting the loan amount. In most instances, because it is the buyer who is obtaining the loan, he or she will be responsible for paying for the appraisal.