KNOW THE FACTS
Appraisal Myths & Realities
Separating fact from fiction in real estate appraisals
There are many misconceptions about what appraisers do and how the appraisal process works. Here are some of the most common myths — and the reality behind each.
Myth: Assessed value should equal market value.
Reality: While most states support the concept that assessed value approximate market value, this often is not the case. For example, interior remodeling may have occurred without the assessor's knowledge, or properties in the area may not have been reassessed for an extended period.
Myth: The appraised value varies depending on who orders the appraisal.
Reality: The appraiser has no vested interest in the outcome and renders services with independence, objectivity, and impartiality — regardless of whether the appraisal is conducted for the buyer or seller.
Myth: Market value should approximate replacement cost.
Reality: Market value is based on what a willing buyer would pay a willing seller, with neither under pressure. Replacement cost is the dollar amount required to reconstruct a property in-kind — a very different measure.
Myth: Appraisers use a simple price-per-square-foot formula.
Reality: Appraisers make a detailed analysis of all factors pertaining to value, including location, condition, size, proximity to facilities, and recent sale prices of comparable properties.
Myth: All homes in an area appreciate at the same rate.
Reality: Value appreciation of a specific property must be determined on an individualized basis, factoring in data on comparable properties and other relevant considerations. This is true in good times as well as bad.
Myth: You can tell what a property is worth by looking at the outside.
Reality: Property value is determined by a number of factors including location, condition, improvements, amenities, and current market trends. An exterior view alone cannot reveal these details.
Myth: Because I pay for the appraisal, I own it.
Reality: In a lending transaction, the appraisal is legally owned by the lender unless they release their interest. However, under the Equal Credit Opportunity Act, consumers must be given a copy of the appraisal report upon written request.
Myth: I don't need to read the appraisal as long as the lender is satisfied.
Reality: Only by reading the appraisal can you verify its accuracy. It also contains valuable information including the legal description, square footage measurements, comparable properties, neighborhood description, and current market trends.
Myth: Appraisers only estimate value for mortgage transactions.
Reality: Depending on their qualifications, appraisers provide a variety of services including advice for estate planning, dispute resolution, zoning review, tax assessment challenges, and cost/benefit analysis.
Myth: An appraisal is the same as a home inspection.
Reality: An appraisal and a home inspection serve different purposes. The appraiser forms an opinion of market value. A home inspector determines the condition of the home and its major components. Both are important but they answer very different questions.
