Anyone involved in the sale of real estate has a vested interest in the results of a real estate appraisal. The outcome affects the seller, the buyer, the lender, and even the real estate agent.
Too low a valuation of the property by the appraiser could mean that a seller has to lower the asking price. For a loan officer, this could mean less commission or none at all. Too high an appraisal means that the buyer could pay more than the value of the property. For the real estate agent, his commission could increase or decrease, which is based on the purchase/sale price of the property.
An appraiser, who is supposed to be licensed by the state, performs the nationwide property and appraisal services. It is best to hire a local person with years of full-time experience to get a more accurate assessment. The assessor and appraisal are governed by the Minimum Standards, published periodically in the Foundation’s Uniform Standard of Professional Appraisal Practice for Appraisal. The Foundation is approved by Congress.
The recent real estate bubble, unfortunately, posed problems for appraisers and many players involved in real estate transactions. According to Realty Times in its April 2006 issue, lenders have regularly asked appraisers to inflate real estate values to keep up with the ever-increasing real estate market. A real estate appraiser in San Diego resigned and turned his license over to the state, after being fired three times in a row for refusing to inflate his appraisals. Now real estate appraisers across the United States are under the microscope of federal financial regulators and Congress.
The real estate appraiser may be engaged by the seller to determine an exact sale price or by the buyer to ensure the accuracy of the purchase price and the mortgage; but usually, the lender hires or uses their own internal appraiser. While buyers may assume the lender has their best interest, mortgage lenders have their own best interests at the forefront, especially some not-so-scrupulous loan officers who may aim for a higher commission.
If I were a seller I would hire my own real estate appraiser to make sure I get the most out of my property. As a buyer, I would put the money upfront to hire an independent and objective appraiser unrelated to anyone as part of the real estate transaction. This ensures that I don’t take out a mortgage, based on an inflated appreciation appraisal, that will give me a new home with lower or negative equity. The lender may still require a different appraiser.
If five different real estate appraisers appraise the same property within the same time frame and under the same conditions, the result could be five different and varying real estate appraisals. Why? There is no checklist or established value for every feature and equipment of the property. Although assessments are based on prescribed standards, this is a subjective process.
If there is more than one real estate appraisal, and they significantly disagree, you have options. If the value is too low for the seller, the renovations may increase the value, or you may refuse to sell. If the lender insists on the value of their appraiser, which is at odds with the value of your commercial real estate appraiser, as a buyer you may seek financing elsewhere or refuse to purchase the property. There is also the possibility of bringing the evaluators together to reach a common agreement on the value.
Remember that the person who is looking out for you is yourself. Make sure that the appraiser of your real estate transaction is reputable, objective, and unrelated to anyone in the transaction, local and experienced.