What Do Appraisers Do ?

The short version is this: An appraiser's job is find out what property is likely to sell for, and then write a report which shows how he came to that opinion. Sounds pretty simple. And sometimes it is. But many times coming to a credible "opinion of value" can be quite complex.

What Appraisers DON'T Do.

Appraisers are not "home inspectors". The profession of "home inspector" is relatively new to real estate. His job is to inspect the quality and condition of the dwelling and site, and to report any problems of which a potential buyer or lender should be aware. A home inspector will test the wiring; crawl into the attic; check all the plumbing; estimate the remaining life of the roof; find out if all the appliances are working well; and generally inform his reader "how good of shape" the house is in. An appraiser is also NOT a Termite or Structural Pest Control provider. Lenders in particular insist that a dwelling be free of termite infestation and meet a minimum of structural requirements. That's the roll of the termite company.

Appraisers need to know some of the same things a home inspector discovers, but an appraiser's primary concern is the VALUE of the property. Obviously, the condition of the house plays a role in its value. But a great many other factors do as well. So appraisers are likely to spend a lot less time "looking over " the property, and a lot more time discerning what its market value is.

What is "Market Value"?

Here is a summary of the text book definition.

Market value is the most probable price which a buyer and seller will settle on when:

1. The property is offered in a competitive and open market.
2. The buyer and seller are each acting in their own best interest.
3. The buyers and seller are either well informed or well advised about both the property and current market conditions.
4. Neither is motivated by coersion, intimidation, or any other unusual fear or influence, and
5. There is no unusual creative financing or other concessions.

In other words, the seller has a pretty good idea what his home is likely to sell for, and will not go below a certain price because he believes another buyer will come along who will pay more. At the same time the buyer has some idea what the house is likely to sell for, and at a certain price will not go above that amount but will instead look for a different house.

Who DECIDES What a House is Worth?

Now THAT's a Good Question! To illustrate, here's an old story about three major league baseball umpires having a talk after a game. Umpire #1 says..."There are balls, and there are strikes. And I call them as I see 'em." Umpire #2 says..."There are balls and there are strikes. And I call them what they ARE." Umpire #3 says... "Hmmmmph! There are balls and there are strikes, but they ain't nothin' until I call 'em."

A lot of people think apprisers are like Umpire #3; that the appraiser determines what the house is worth. Nothing could be further from the truth. An appraiser is not even like Umpire #2.... coming to a fool-proof conclusion about the absolute "real" value of the property. In truth, it is the "market" that determines what a property is worth. That is, it's all those buyers and sellers out there, who are coming to agreement to sell or buy. It is ironic that while some people look to an appraiser to "state with authority the actual value" of a property, the skilled appraiser himself is looking at the actions of the people in the market to find out what the most probable value is. An appraiser studies not just real property, but how people are valuing and acting when it comes to real property.

Research - Analyze - Report

There, in a nutshell, is what an appraiser does. Without going into sufficient detail to make you an appraiser, those three basic steps pretty well tell the story of what an appraiser will do to find out what a property is likely to sell for.

Research involves taking a good look at the property; the purpose of the appraisal; studying documents regarding the dwelling; and generally getting to know the house being appraised. Then the research turns outward to the real estate market. What homes in the area are for sale now? What homes have sold recently? What were those homes like and what did they sell for? How does each sale compare with the house he's appraising? Collecting and verifying the accuracy of such data on these and numerous other topics is the research part of the appraisal.

Analyze. Part of an appraiser's job is to "walk behind the eyes of a probable interested buyer ". To look at how actual buyers have looked at what's available, and to try to understand how they came to buy a recent sale, and for what price? An appraiser has to "think it through" on the basis of accurate data, and determine what the property is likely to sell for, based on the actions of real buyers and sellers in the very recent past.

Report. Once an appraiser reaches his "opinion of value", he needs to report all the information as well as the analyzation process which led him to that conclusion. The purchaser will likely be making a very important decision based on the report given to him by the appraiser, it is important that the report be accurate, well thought out, and well written.

And Then?

And then, if the appraiser has used his education, skill and experience well, and has written an accurate, unbiased, and well considered report which presents his estimate of value, the one who ordered the report can proceed to buy or not buy, to lend or not lend, to sell or not sell. Appraisers are in the business of providing accurate information and informed opinions. When they do that well, the real estate transaction (whatever it is) can proceed to everyone's benefit.