Home ownership is the ultimate dream for many in the United States, but going through it for the first time can be a daunting process. We find that first-time home buyers often misunderstand one of the key components of the home buying process: the appraisal. It is the single most important tool to ensure buyers pay a fair and equitable price for the property they purchase. That's why appraisals are so important.
Below are the basic elements of the appraisal process to help you effectively navigate the difficult and exciting journey of buying a home.
What is an appraisal?
It might seem simple, but we find that first-time home buyers often misunderstand what an appraisal is and how it impacts the home-buying process. Appraisals are a credible opinion of the value of a home based on thorough and unbiased research and analysis. They are meant to reflect the market value of a property, which is not always the sale price. In many cases, an appraisal may help prevent a buyer from overpaying for a home. Though other valuation methods exist, appraisals will give you the most objective and impartial opinion of value, and are required for all real estate transactions with loans involving $250,000 or more from federally-insured financial institutions.
Who is an appraiser?
An appraiser is an independent and impartial professional who is licensed or certified in the state he or she works. Qualified appraisers have gone through extensive education and testing and have significant experience in the field. He or she must comply with any state regulatory statutes and abide by the Uniform Standards of Professional Appraisal Practice (USPAP), the congressionally-authorized standards for real estate appraisers in the United States developed by The Appraisal Foundation. They are also required to complete continuing education courses to ensure that they're aware of changes in valuation methods and techniques, technology, and the marketplace. As you can see, there is significant training and expertise involved.
How does an appraiser determine value?
It's important to remember that appraisals do not set the sale price of a home. Rather, the job of an appraiser is to come up with a reliable and credible opinion of value for a home. They are trained to assess a wide range of factors that affect a home's value, including its size, location, condition, age, quality and more. Appraisers assess these factors in relation to recent sales of comparable properties to arrive at the most accurate and objective opinion of value.
What can I do if I think my appraisal is inaccurate?
When examining your final appraisal report, it's important for you to take an objective approach. Even if you are disappointed with the appraisal you receive, you may not have a credible complaint. However, there are a few clear signs that point to an incomplete or inaccurate appraisal. If the data provided is incomplete or there are major omissions, then you may have a case. For instance, if an appraiser does not document the second bathroom in your home, that would be a major issue. Other signs of a flawed appraisal include the use of non-applicable comparable sales and/or vague descriptions in the appraisal report.
If you do deem the appraisal to be inaccurate, you should notify your lender immediately. If there are major errors or you suspect unethical behavior, you should file a formal complaint with the appraisal regulatory agency in your state or through the Appraisal Subcommittee's Appraisal Complaint National Hotline at http://refermyappraisalcomplaint.asc.gov/.
Understanding the role of an appraisal is critical when purchasing any home, especially your first. We hope that the above information will provide you with the knowledge to successfully maneuver the home buying process and become a home owner.
For more information about this topic, please visit The Appraisal Foundation's Consumer Resources page or watch a video tutorial for first-time homebuyers produced by The Appraisal Foundation and Manna, Inc.