Appraisal FAQ's...
Sometimes they are pretty close and sometimes they are way off. That’s precisely the problem with the various on-line valuation methods that now exist. Categorically speaking, most of these on-line valuation tools are known as automated valuation models, or AVM’s. You just don’t know when you can rely upon them; and that’s their biggest problem. Most AVM’s look at the average values in particular neighborhoods. So if your house happens to fall within that average value range then you probably think the AVM is pretty accurate. If you type in enough property addresses that you are familiar with however, you’ll start to see some values that are way off from reality. That’s because most AVM’s can’t properly handle property values that differ too far from the neighborhood average. Some of the reasons that AVM’s can be so unreliable include--
What good are these AVM’s then? They are mostly used by large lenders who need to double check the value of hundreds, or thousands, of properties in their portfolio. They are relying upon averages. That is, they are hoping that the errors produced by these AVM’s end up canceling each other out. But on an individual house basis, you never know when the value produced by an AVM is accurate. Why are these AVM’s so popular. Simple, they aren’t subject to any government regulation. The legal definition of an appraisal was actually changed from an ‘estimate of market value’ to an ‘an opinion of market value’ in order to accommodate AVM’s. You see, an AVM is run on a computer and computers don’t have ‘opinions.’ So by changing the definition of an appraisal to include the word ‘opinion’, an AVM is no longer legally an appraisal and isn’t subject to the various standards that appraisers have to adhere to. The influential lending industry pushed for this change so that they didn’t have to use licensed appraisers. Absolutely. An appraisal is based upon historical data. That means that we look into the past (but as recently as possible) to find houses similar to yours that have sold. We make appropriate adjustments to those sales to derive our estimate of market value. When you put your house on the market you’ll also be interested in knowing what your competition is so that you can fine tune your asking price. Our FSBO appraisal is a regular appraisal along with current data of houses that would compete with yours on the market. You really need to know what your competition is asking so that your asking price isn’t too high or low. Federal Law (Equal Credit Opportunity Act) requires that the lender provide you with a copy of your appraisal upon request. Actually, there are numerous federal agencies that have adopted similar versions of the law requiring that they provide you with a copy of the appraisal. Some lenders will actually provide a copy in your closing documents that you received at closing. Other times, there might be printed instructions included in your closing documents that tell you where to mail your request. It's important to note that the appraiser owes confidentiality to the lender who is the appraiser's client. This means that the appraiser CANNOT release a copy of the appraisal to you, even if you paid the appraiser directly on the day of inspection. It doesn't matter how the appraiser is paid- the lender is still the client and the appraiser would be violating their professional standards (USPAP- Confidentiality) by doing so. It really doesn't matter much anyway because the lender is obligated to provide you with the appraisal. Here's a copy of the Federal Reserve Rule covering this topic. [Click HERE] Yes, here in the state of Connecticut. All users of appraisals require the use of a licensed appraiser which pretty much makes it impossible to stay in business as an appraiser if not licensed. Not likely. We all follow the same standards but there is plenty of leeway in what data appraisers choose and what sort of methodology is applied to that data. Ultimately, an appraisal is an opinion of value and different appraisers are likely to have different opinions. That’s why it’s especially important to hire an appraiser with good qualifications. No. Our standards require that we know in advance what the purpose of the appraisal will be for. We develop and report the findings of your appraisal based upon the purpose that you tell us. Therefore, the appraisal is limited to that purpose only. Our standards cover this issue in quite a bit of detail and important Advisory Opinions have recently been issued that explain this situation in detail. Please call us if you have any questions. Absolutely! Please call and talk to us before ordering this type of appraisal from our firm or anyone else. An appraisal developed for purposes of litigation is very special and it takes someone with a lot of experience in this area to develop an appraisal that is defensible in court. If you end up ordering more than one appraisal then there’s a chance that all of those appraisals can be ‘discovered’ during the course of your litigation. You don’t want to be in possession of multiple appraisals because they can be used against each other. It’s extremely important to only have ONE appraisal that’s done right. We’ll have a more substantial answer to this question posted shortly. But for right now realize that our services are provided on a ‘disinterested’ basis. That is, we get paid for doing your appraisal and have no other motives. Your real estate agent is also trying to list your house for sale. There are different reasons why an unethical agent may desire to over or under-price your house. Additionally, most agents actually never receive specialized appraisal training but learn on the job by trial and error. We have hundreds of hours of education and thousands of hours worth of experience. Most agents do a pretty decent job of recommending a list price for houses in cookie-cutter type subdivisions. But for unusual houses or situations you want to have a second opinion to compare to your agent, an appraisal is the way to go. |