Appraisers Determine a Home’s Market Value

Real Estate Appraisers Determine a Home’s Value

When you are buying a home, there are several people involved to help you.  Of course, there is the REALTOR® who helps you find the home and negotiates a selling price.  You depend on your real estate agent to help you get the best deal possible and make sure that you are not paying too much for your dream house.  Most home buyers also have a mortgage loan officer to help them obtain the mortgage necessary to buy the home.

Do I Need a Real Estate Appraisal to Buy a Home?

If you are purchasing real estate using a mortgage, yes, you will need an appraisal.  Once, the bank has approved you financially to purchase a home, and your Offer to Purchase has been accepted and signed, the bank will order an appraisal on the home or property.  The bank does this to determine if the home is worth what you are paying for it.   Obviously, this is important to the bank, because they want to make sure the home (their security for your mortgage) will sell at least for the amount they are loaning you.

Who Are Real Estate Appraisers?

Appraisers are real estate professionals who must be educated and licensed to practice.  In North Carolina, it is a challenging process to become a certified licensed appraiser.  There two different certifications: General (Commercial) and Residential.  Since we are discussing purchasing a residential property, we will focus on the residential certification.  First of all, someone who wants to become an appraiser must apply to their state’s Appraisal Board by paying an application fee and passing a character background check.  Once those qualifications are met, they must take four classes (90 hours) and pass the exam for each.  After passing the four classes, they are able to register with their state as a “registered appraiser trainee.”  At this point, they must work with a Certified Residential or Certified General Appraiser who will supervise their work.  North Carolina requires the trainee to log 2500 experience hours with a supervising appraiser.  The Appraiser Trainee must also take and pass an additional six classes (110 hours) before they can sit for the state exam.  Once all of these requirements have been met, and they have passed the state exam, the trainee becomes a Certified Residential Appraiser.  A bank will only consider an appraisal by someone who is state certified.  To find out more about becoming a real estate appraiser in NC, visit the North Carolina Appraisal Board.

How Do Residential Appraisers Determine Market Value?

An important fact to remember is appraisers should be objective; someone who has no financial or other connection to any person involved in the transaction.  By being objective, the appraiser can determine what the market is telling them about the property.  Appraisers use three approaches to determine value:  Income, Cost, and Sales Comparison.  For residential real property market value, Sales Comparison and Cost are both used with Sales Comparison being the preferred.  The Cost Approach is most useful for new properties, where the costs to build are known. The appraiser estimates how much it would cost to replace the structure if it were destroyed.  For the Sales Comparison, an appraiser will look at the subject (the home you are buying) property’s physical characteristics:  location, size, features, etc.  Then, they will use public records and the Multiple Listing Service (where most residential properties are listed for sale) to find comparable properties (comps) that have sold within the last six months.  Generally, a bank will require the appraiser to use at least three comparable sales in his/her appraisal report.  The appraiser must consider the physical properties of each comparable and make adjustments (plus or minus) to bring the properties to be more like the subject.  Once the appraiser has done their analysis, he will reconcile a final value.  Appraisals are “opinions of value”, so appraisal market values may vary between appraisers.  After the bank’s mortgage underwriter has reviewed the appraisal, they will decide if the mortgage is a good investment for them or not.  Usually, the appraisal is one of the last things completed before your mortgage lender will give you final approval for your loan.

Is an Appraisal the Same Thing as a Comparative Market Analysis (CMA)?

REALTORS® use CMA’s to help home sellers set an asking sales price that is realistic. Experienced real estate agents many times come very close to an appraisal market value with their CMA’s, but a real estate appraiser’s report is much more detailed.  The appraisal report is the only valuation report a bank will consider when deciding whether or not to lend the money.

If I’m Getting an Appraisal, Do I Need a Home Inspection?

When purchasing a home, most inspections are optional, where the appraisal will be required as mentioned earlier.  A Home Inspection and an Appraisal are not the same thing, so don’t be confused.  I always recommend a home inspection, because it is a more detailed report of the physical condition of the property.  The appraisal might mention the condition of the home, but it is really about the market value of the home.

If I’m Selling My Home, Should I Get an Appraisal?

I’ve had sellers ask me if they should get an appraisal before selling their home.  As far as that goes, it’s not necessary, but it is a good idea.  An appraisal can validate your list price, and give the buyer peace of mind that your home is worth what you’re asking for it.  However, it cannot be used as the appraisal of record  for the buyer’s mortgage.

Real Estate Appraisers are a very important piece of the real estate market.  Now that you understand a little more who real estate appraisers are and what they do, you are more informed and can make better decisions regarding any real estate transaction.

Tony Green, REALTOR®

Tony Green is a REALTOR® who works in Winston Salem, Clemmons, and Lewisville NC and the owner/broker of EXIT Realty Elite. He attended Appalachian State University (go App!) and graduated with a BSBA in finance and real estate. He likes walks on the beach, cute little puppies, and smash mouth wrestling...(and maybe a little humor from time to time! :-D ) Tony looks forward to serving you and helping you with your real estate needs.

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