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What Is a Real Estate Appraiser?

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Home values matter. For homeowners, they determine how much equity you’ve built and help assess the health of your local housing market. For homebuyers, they tell you whether the sticker price on your pending purchase is accurate and fair.

To get an unbiased opinion of a home’s value, mortgage lenders generally require an appraisal of the property their customer wants to buy and hire a third-party appraiser to complete the job.

Here’s what you need to know about real estate appraisers and what role they play in the homebuying process.

Understanding real estate appraisers

A real estate appraiser is trained to calculate a written estimate of a home’s value, also known as an appraisal. Appraisers become qualified by passing a state examination to become a certified or licensed appraiser. Licensed and certified residential real estate appraisers must have completed a minimum 150 and 200 appraisal education hours, respectively, according to the Appraisal Institute. They must also meet the minimum for hours of experience — 1,000 hours in no less than six months for licensed appraisers, and 1,500 hours in no less than one year for certified appraisers.

In most home purchases, mortgage lenders require an appraisal be completed on the property before approving a loan.

Appraisals may be requested or required for several other reasons, as well, according to the Appraisal Institute. These include:

  • To set the value of a home during a refinance
  • Helping home sellers set an acceptable sales price and homebuyers set a reasonable offer price.
  • Establishing a starting point for the exchange or reorganization of residential property, or to place the ownership of several properties under one owner.

Appraisers often use one of three methods when assessing a home’s value.

Sales comparison method: This is where appraisers compare the home’s condition, construction and features to the recent sales of similar homes in the area.

Cost method: Appraisers calculate what it would cost to buy a lot identical to the one the house is on and then build the same house on it. This is essentially the replacement cost.

Income method: Often used for investment or rental properties, this involves using the expected rental income of the home being purchased or the income of comparable homes in the area to calculate the value that would yield the rate of return the average investor would require for a similar home.

What appraisers look for

An appraiser’s role is to provide an impartial, objective and unbiased opinion about the value of real property, according to the Appraisal Institute. They compile facts, statistics and supplemental information about a property, analyze the data and generate an opinion of that property’s value.

The appraiser conducts upfront research before visiting the property being appraised. This includes verifying the legal description of a home with the local public records entity. Once they visit the home, they make note of the property’s unique features. The characteristics being evaluated include the property’s:

  • Amenities
  • Condition
  • Interior
  • Structure
  • Upgrades

The information collected allows the appraiser to prepare an appraisal report to accompany the other files needed to complete a mortgage transaction. The most common form used in real estate appraisals is the Uniform Residential Appraisal Report.

For a standard home purchase, you’re entitled to receive a free copy of the appraisal report no later than three days before your closing date, according to the Consumer Financial Protection Bureau.

Who chooses the home appraiser?

Mortgage lenders typically choose the appraiser for home loan transactions and charge the homebuyer an appraisal fee at closing. However, it’s possible to negotiate with the home seller and request they cover the appraisal fee, which might fall somewhere in the neighborhood of $300 to $400.

As a homebuyer, you generally aren’t allowed to shop around for an appraiser. The appraisal fee is listed under the services you can’t shop for on the Loan Estimate. The best way to ensure you’re being charged a competitive fee is to compare Loan Estimates from multiple mortgage lenders.

Do I need a second opinion?

A lower-than-expected appraisal could derail your home purchase, but you have options before things go sour.

If you’re not pleased with the appraiser’s opinion of your future home’s value, you can challenge the appraisal report and have it reviewed. You’ll need to explain in writing why you’re disputing the report and provide evidence to help your case.

In the event that the issue isn’t resolved, you can request that your lender order a second appraisal, though they aren’t obligated to make that order. Also keep in mind that if you’re granted a second appraisal, the cost will likely be passed down to you at closing just like the first one, unless you negotiate with the seller.

Still, if an appraisal comes in much lower than the purchase price, your lender may require you to pay the difference at closing or deny your mortgage application. This situation may also give you the opportunity to renegotiate with the seller on a lower purchase price to better align with the appraiser’s opinion of the home’s value.

The bottom line

Appraisals give you a fair assessment of a home’s value. They also help mortgage lenders establish a loan amount when underwriting a mortgage. If you’re buying a home, you can expect that the cost associated with the appraisal will be handed down to you as part of your closing costs.

Remember, there are options if your initial appraisal report is too low and putting your mortgage approval in jeopardy, which include going through the appeal process.


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