What Consumers Need to Know
About Real Estate Appraisals and Appraisers
Credible and reliable opinions of value help to stabilize real estate loans and investments, which
promotes socially desirable real estate development. Appraisals are particularly valuable because they
are an objective and unbiased source of real estate information. Unlike some other real estate
professionals, the appraiser performs a professional service for a fee rather than for a commission
contingent on the value conclusion, the approval of a loan or the eventual sale of the property.
To help consumers understand the role of appraisals in the lending process, the Appraisal Institute offers
these helpful tips.
1. Understand the role of mortgage appraisals. Real estate appraisals are critical components in
real estate financing and risk management. Lenders order appraisals to get a stronger
understanding of risk relating to the underlying collateral offered in a mortgage. Lenders want to
know how much that property would bring in an open market so they can ascertain that the loan
is well enough supported by the collateral. Mortgage appraisals are not technically provided to
confirm a sales price, although they can help both lenders and consumers in making sound
financial decisions. It serves neither the lender nor the consumer to enter into a mortgage loan
that is more than the value of the property. In some cases the appraisal may not match the
contract price. But just because an appraisal comes in below – or above – the listing or contract
price doesn’t mean it’s flawed. The agreed-upon contract price may be above market value, for
example. In those situations, the buyer and seller often renegotiate the contract at more favorable
or balanced terms.
2. Make sure your lender hires a qualified appraiser, such as a designated MAI, SRPA, SRA,
AI-GRS or AI-RRS member of the Appraisal Institute. The best way to combat potential
problems with appraisals is to ensure the appraiser hired by your lender is highly qualified and
competent. The homebuyer can ask whether the appraiser is directly engaged by the bank or
whether the bank utilizes an appraisal management company, and what their procedures are for
engaging qualified appraisers. You have every right to demand the use of a highly qualified
appraiser, someone with field experience in your market and knowledge and experience to
handle the assignment properly. A qualified appraiser knows how to conduct a thorough market
analysis and make appropriate adjustments. Ask the lender for the qualifications of the appraiser
and specifically, whether they are professionally designated by a professional appraisal
organization like the Appraisal Institute. Remember that your home purchase is one of your most
important lifetime investments. The money spent on a quality appraisal is well spent.
3. Accompany the appraiser during the inspection. Contrary to incorrect interpretations of
appraiser independence requirements, appraisers welcome information that would assist the
development of credible assignment results. If lender policies permit, consumers can accompany
appraisers when conducting the property inspection and may provide the appraiser with any
information they consider important. Ask your lender for permission to do so, and confirm the
appointment. Most importantly, take note of whether an adequate inspection is performed. Did the
appraiser spend enough time at the property to observe important features or improvements or
200 W. Madison St., Suite 1500, Chicago, IL 60606 | 888-756-4624 | www.appraisalinstitute.org
4. Ask for a copy of the appraisal report. Homebuyers have a right to obtain a copy of the
appraisal report. Even though the appraisal report is ordered to help assess lender collateral risk,
buyers are entitled to a copy of the appraisal report. Federal regulations require lenders to
provide property buyers with free copies of appraisal reports no later than three days before the
loan closes. Homebuyers and sellers should first understand what an appraisal is and how it’s
used. Real estate appraisals for mortgage finance applications are prepared for the bank or
financial institution so they can better understand the collateral risk in making the loan. This can
be confusing, because homebuyers typically pay for the appraisal and receive a copy of it.
5. Examine the appraisal report. Although appraisal review is best performed by qualified
appraisers, you can examine the appraisal for potential deficiencies. According to “Appraising the
Appraisal: The Art of Appraisal Review,” 2nd edition, common errors in appraisals include: misuse
of adjustments to comparables, disregarding special financing and concessions, or miscalculation
of gross living area. Ask yourself: do adjacent homes add or detract from the value of the subject
property? Is the subject property equal to or lower in price than surrounding homes? Does the
floor plan have any functional problems? Does the house (particularly the kitchen and bathrooms)
require major remodeling to make it comparable with similar homes in the same price range? Is
the number of bedrooms and baths in the home comparable to similar homes in the same price
range? Did the appraiser perform an adequate inspection?
6. Appeal the appraisal. Or ask your lender to review the appraisal report. Most lenders have
appraisal appeal procedures, known as “Reconsiderations of Value.” If you are aware of recent,
comparable sales information or items that may not have been available or considered by the
appraiser, provide those to your lender.
7. Ask your lender to order a second appraisal by a qualified appraiser. If problems were found
with the first appraisal, you can and should obtain a second appraisal. You should see the
importance of hiring a qualified appraiser by now; make sure your lender uses a qualified
appraiser the second time, if they did not do so the first.
8. File legitimate complaints with the appropriate state appraisal board or professional appraisal
organizations. Lenders are required under federal law to report legitimate complaints with
appropriate regulatory authorities. State appraiser regulatory authorities also accept complaints
from consumers and some states accept them anonymously. To contact the appropriate
appraisal board, visit https://www.asc.gov/State-Appraiser-RegulatoryPrograms/StateContactInformation.aspx.
An additional benefit of using a professional designated
Melissa R Calhoun, SRA Realtor/Designated Appraiser Phoenix Metroplex, Maricopa County. Arizona.