Everyone involved in the sale of real estate has a vested interest in the results of a real estate appraisal. The outcome affects the seller, the buyer, the lender, and even the realtor.
A too low valuation of the property by the appraiser could mean a seller must lower the asking price. For a lending officer, it could mean a lesser commission or none at all. A too high valuation means the buyer could be paying more than the property is worth. For the realtor, his/her commission could go higher or lower, which is based on the purchase/sell price of the real estate.
An appraiser, who should be licensed by the state, performs the real estate appraisal. It is best to hire someone local with years of full-time experience in order to get a more accurate appraisal. The appraiser and appraisal are governed by the minimum standards, published periodically in the Uniform Standard of Professional Appraisal Practice by the Appraisal Foundation. The Foundation is chartered by Congress.
The recent real estate bubble, unfortunately, brought problems for appraisers and many involved in real estate transactions. According to Realty Times in their April 2006 issue, appraisers have been routinely asked by lenders to inflate real estate values to keep up with the ever-rising real estate market. One real estate appraiser in San Diego quit and turned in his license to the state, after being fired three consecutive times for refusing to inflate his valuations. Now, real estate appraisers across the United States are under a microscope from federal financial regulators and Congress.
The real estate appraiser may be hired by the seller to determine an accurate selling price or by the buyer to ensure the accuracy of the purchase price and mortgage; but generally, the lender does the hiring or uses their own in-house appraiser. Though buyers may assume the lender has their best interest, mortgage lenders have their own best interest at the forefront, especially some not-so-scrupulous lending officers who may be targeting a higher commission.
If I were a seller, I would hire my own real estate appraiser to ensure I was getting the most for my property. As a buyer, I would put the money out upfront to hire an independent and objective appraiser with no connection to anyone within the real estate transaction. This ensures that I do not contract for a mortgage, based on an inflated appraisal valuation, that will give me a new home with a lower or negative equity. The lender still may require a different appraiser.
If five different real estate appraisers evaluated the same property within the same timeframe and under the same conditions, it could result in five different and varying real estate valuations. Why? There is no set checklist or established value for each property feature and amenity. Though appraisals are based on prescribed standards, it is a subjective process.
If there is more than one real estate appraisal and they disagree significantly, you have options. If the value is too low for the seller, renovations may raise the value or you can decline to sell. If the lender insists on its appraiser's value, which disagrees with your real estate appraiser's value, as the buyer you can look for financing elsewhere or decline to purchase the real estate. There also is the option to bring the appraisers together to come to a common agreement on the value.
Remember, the person looking out for your best interest is yourself. Ensure the appraiser in your real estate transaction is reputable, objective with no connections to anyone in the transaction, local and experienced. |
