The Washington Post
June 24, 2007
An appraisal is:
*A detailed estimate of the value of a specific property by an independent third party. Appraisers are licensed by states after completing course work and training that familiarizes them with the real estate markets in which they work. Many appraisers are members of the Appraisal Institute, an association with its own professional designations and code of standards and ethics.
*An analysis that can be performed by one of three methods. The "cost method" considers the estimated replacement cost of improvements, minus such factors as material deterioration, and then adds in the value of the land. The "income method" is used for properties that produce income and is based on the amount of income that can be produced. The "sales comparison method" makes a comparison to similar properties nearby that have recently sold. The latter is generally considered the most accurate for appraising a residential property.
*A number that can differ significantly from the comparative market analysis, or CMA, provided by a real estate agent, though experienced agents' estimates are often very close.
*A number that also differs from an assessment, which is a measure of value for taxation.
*A practice intended to protect lenders so they won't lend more than a house is worth. The appraisal is the only valuation report a bank will consider when deciding whether to lend money against a property.
*A practice that can also protect buyers from paying too much for a property.
*An expense that the buyer must pay in a home sale, even though the appraiser is usually chosen by the lender. Home appraisals typically cost about $350.
*A result that can block a deal, if the number comes in lower than the sales price. When that happens, it's back to the negotiating table. Either the sales price must come down, or the buyers must bring more of their own money into the deal.
*An important protection that can be circumvented when the appraiser is pressured by those with a financial stake in the deal, such as the mortgage broker, seller or real estate agents, to "make the number."
The average cost of home appraisals has risen 7 percent since 2003.
Nearly 80 percent of the mortgage lenders surveyed by financial researcher HSH Associates in June 2006 charged an upfront appraisal fee.
Year ... Average Cost
2003 .......... $309
2004 .......... $314
2005 .......... $318
2006 .......... $331