No matter how many times you’ve been through the process, the prospect of a home appraisal can seem a little daunting. With the cobweb of people involved, it’s understandable that your clients may feel a little bit confused. So, to help everyone through the process, we’ve compiled a list of the top seven home appraisal myths. After all, knowledge is power!
Myth: Appraisers Decide a Property’s Value
It’s a common home appraisal myth, but appraisers neither set home values nor let an agreed-upon purchase price influence their valuation. An appraisal is, simply put, an unbiased opinion of a home’s value. It helps the lender ensure that they’re making a sound financial decision when they choose to extend a loan.
It’s an appraiser’s job to independently develop a credible opinion of the value of the home based on current market trends, recent sales of similar properties, a visual inspection of the home, and other aspects of the home (e.g., amenities, square footage, neighborhood, and more).
Myth: Appraisal Inspections and Property Inspections are the Same
This is probably the most common out of the home appraisal myths, and it’s understandable. Home inspections and home appraisals are both used to determine a property’s condition as a safeguard before the purchase is complete.
Although both take a close look at the property, an inspector’s job is to determine the condition of the property. The appraiser’s job is to determine the value of the property. An appraisal is a statement of value, derived from factors that include research in the market area. A home inspection is simply an assessment of the condition of the house. This assessment includes a detailed report of anything that’s wrong with the home.
Myth: Being an Appraiser is an Easy Job
While being a home appraiser may seem easy, the truth is that it requires a lot of work and experience. Sure, there are some perks: it gives you the opportunity to run your own business, your income is fee-based, and work is plentiful. But, there are still many hurdles to be jumped before becoming a successful appraiser.
For instance, appraisers have to train with a more experienced appraiser before they can do appraisals on their own. They also must obtain a license and pass an exam. Then, their days are packed with research, scheduling appointments, and driving to the location before assembling reports. It’s not an easy job, but it is a very rewarding one.
Myth: AMCs Always Choose the Least-expensive Appraisers
While some AMCs may try to find the least-expensive appraisers, this is not the norm. And it’s not what we do here at Kairos. Aside from laws governing the payment of reasonable appraisal fees, it’s also in the AMC’s best interest to hire appraisers based on experience and qualifications. This ultimately increases efficiency and reduces the need for appraisal reports to be revised.
Additionally, there are federal guidelines around home appraisals to prohibit anything that may resemble bribery to achieve a certain value or anything that creates a conflict of interest. The law says that AMCs must pay “a rate that is customary and reasonable for appraisal services performed in the market area of the property being appraised.” This means that, by law, AMCs can’t pay high or low.
Myth: A Home’s Appraised Value Equals its Tax-Assessed Value
It’s understandable why people assume that a home’s appraised value will match its tax-assessed value. While these may seem similar, they are actually two very different valuations.
The appraised value is based on current sales and market conditions. While a tax assessment is based on sales and market conditions recorded over a number of years. Generally speaking, a tax assessor does not even step foot into the home for this process. They simply determine the property’s value for taxation purposes. Which, may or may not reflect what you could actually sell the property for. An appraisal, on the other hand, involves a physical review of the home (in most cases) combined with market research.
Myth: Home Renovations Equal a Dollar-for-Dollar Increase in Home Value
While some renovations may indeed add value to a home, it’s safer not to bet on how much. The true market value of your property is based on what buyers pay for similar houses, in similar areas, in similar conditions. Home improvements rarely increase the value of the home by the amount you paid for them. And some home improvements have a better return than others.
If you spend thousands of dollars on renovations, there is no guarantee that you will see that investment reflected in your home valuation. Simply put, you may want to rethink replacing flooring or appliances if you think that they will garner a major return. That said, mid-range improvements have been shown to yield the best ROI in most parts of the country.
Myth: The Appraiser Works for the Buyer
Usually, the appraiser works for an AMC like Kairos Appraisal Services. Whereas the lender orders the appraisal from one of these companies. Federal guidelines require that the lender hire the appraiser so that the final appraisal report reflects the home’s fair market value and isn’t influenced by any other party.
While the borrower may be responsible for the fee, the appraisal is so that the lender can determine the value of the property and make sure that it’s worth what they are lending. Appraisers do not work on behalf of the buyer or seller.
Phew! We hope that clears up some common home appraisal myths that are floating around out there. If you have any questions about home appraisals or just want to talk to someone from the friendliest AMC around, just head over here to get in touch.