Appraisal Myths and Realities consumers should be aware of

Appraisal Myths and Realities

The following are Appraisal Myths and Realities consumers should be aware of.

Myth #1:  The homeowner pays for the appraisal and therefore, owns the appraisal.

Reality:  If federal money is involved in the transaction – Fannie Mae, Freddie Mac, HUD, VA, or other programs, – then by federal banking regulations, the lender must be the client of the appraiser.  The entity that orders the appraisal is the client, not the person delivering the appraisal fee for the client.

Myth #2:  If a homeowner has an appraisal done with one lender, they should be able to use the same appraisal report with a different lender.

Reality:  Other lenders cannot use the report for lending purposes until they establish the client/appraiser relationship.  The appraiser will need to get permission (a release) from the original client and any/all subsequent clients before reappraising the property for the new lender.  In addition, if the effective date of the appraisal has changed, the appraiser must research any new market conditions and update the existing appraisal report, which could mean drafting an entirely new appraisal.

Myth #3:  The homeowner put $10,000 in improvements into the home so the appraisal should be at least $10,000 higher.

Reality:  Example: If you could buy a box of Tide for $100 or buy a box of Tide for $10, which would you buy?  This is the same logic that can be applied in the marketplace.  When two homes in the same neighborhood are for sale and one under duress is selling for considerably less, the home that is listed higher is now overpriced for the market.  Once the house under duress sells at the lower price, the now becomes the market value for competing homes in the area.  Remember, appraisers use the principle of substitution by determining what other homes in the market area can be purchased for the same price.

Myth #4:  The licensing of an appraiser ensures his or her competency.

Reality:  Licensing does not necessarily ensure the competency of an appraiser.  The Fannie Mar and Freddie Mac Selling Guides require lenders to review the appraiser’s education and experience.

Myth #5:  Communication between an appraiser and a real estate agent is prohibited.

Realty:  Absolutely not.  The appraiser cannot talk about value of the property.  However, they can obtain factual information about the property from the real estate agent.