Table of Contents

1.  Choosing Your Real Estate Appraiser

2. Fast Turnaround and the Real Estate Appraisal

3. Real estate appraisal – is that the real one?

1.  Choosing Your Real Estate Appraiser

If you have been thinking about purchasing a real estate property for personal use or as an investment, you’ll need to hire the services of a real estate investor.  If you play to finance your home through a bank or other lender, you’ll more than likely need to get the property appraised first.  Banks and most lenders want to know the value of the home for your protection, as well as make sure that the home they are financing is worth the total amount that you take on the loan.

In most cases, the appraisal indicates that the home does indeed meet or exceed the asking price.  In some cases however, the appraisal will come back saying that the home is worth less than the selling price.  If this is the case, the buyer normally has to either drop the deal or try to negotiate with the seller to get a price that meets the appraisal.

For those very reasons, a real estate appraiser is very important.  When you are dealing with a home, one appraisal can make a deal or break it. Even though you may not be financing your purchase through a lender or the bank, you should still make an effort to get the home appraised and find out the true value.  You should also make a point to find the best appraiser that you can afford.  If you hire an appraiser who isn’t that experienced, you’ll pay for it later when you discover that the property isn’t worth what you paid for it.

A real estate appraiser will go through the home performing an evaluation, and then provide you with a written evaluation after he has gathered all necessary information.  Appraisers will also taken into consideration the replacement costs as well.  Also, they will have to very land descriptions as well.  There is a lot of work involved with appraisals, which is why it’s so very important that each step of the process is performed correctly by a qualified real estate appraiser.

If you have a real estate agent, he or she will more than likely be able to make a recommendation.  Keep in mind that this doesn’t mean the recommendation is the best; it’s just someone who your agent works with.  To ensure that you get the right appraisal on your home you’ll need to find yourself an appraiser who is capable of completing the job.

When you look for your real estate appraiser, you should look for someone who comes highly recommended.  You can ask family and friends for their opinions, or search local papers, even the Internet.  If you take your time and search for the best real estate appraiser that you can find – you’ll normally get an appraisal that is right on target.

2. Fast Turnaround and the Real Estate Appraisal
By Harry E Davis


When I first got started as an independent appraiser on my own, it was 1975 and it was a different world. I would arrive at my office and the phone would ring with someone calling in a request. Back then the standard "turnaround" time (the time between receiving a request and delivery of the completed report) was 9 calendar days, which means that Saturday and Sunday were included. In effect then, it meant 7 working days. Today, If someone were to call and I told them it would take 9 calendar days to complete the report, the caller would probably either hang up or faint. In fact, most callers are hoping I will say I can have it done by the end of the day or tomorrow at the latest. How have things changed and why the rush?

When I began, owning a computer was impractical. The desktop PC hadn't been invented yet. It was still a big deal to have a desktop calculator that had a LCD readout! Computers were the domain of universities and large companies. It was still the heyday of the IBM punch card computer. Likewise, when someone signed a contract to buy a home, they went in person to a lending office to apply for a mortgage. The time to complete the application process and issue a mortgage note was anywhere from several weeks to several months. Much of the time was spent getting forms such as employment verifications and credit reports sent and received back by mail. Back then, as now, an appraisal was not ordered until the borrower was approved for the mortgage, however, it still took at least a couple of weeks after mortgage approval before closing could take place. There was therefore not such a rush for an appraisal as there is today.

These days, a mortgage can often be approved in a matter of minutes. Most of the infor5mation that is needed to qualify and approve a borrower is online and many of the more "burdensome" information needs have been "streamlined" away. It is now routine for me to receive an appraisal request where the borrower signed the sale contract a few days ago and they are wanting to close within a week of signing. Most of the speedup can be attributed to the proliferation of computers and the internet.

In the days before computers were in use for appraisal, we typed our reports on a typewriter. Computer forms processing software eliminated the typewriter. Various software evolved to make the processing of the forms appraisers use lightning fast. For many years though, the biggest remaining problems were in the use of photographs and delivery of the finished report. The advent of digital photography finally eliminated the need to take traditional paper photos and paste them onto "picture" pages. Then the widespread use of email and electronic signatures eliminated the need to hand deliver or mail reports. It is now literally possible to receive a request for an appraisal and have the completed report in someone's email box within a few hours.

For many people, the amazing transformation of the appraisal process has been a blessing. For others it has been a curse. It is a blessing for commissioned salespeople in brokerage and lending because it means they get their commissions faster. It is a blessing for the seller or buyer under pressure to complete a transaction in a hurry. It is a blessing for the appraiser who is willing and capable of doing appraisals in high volume. But it is a curse in some ways for the lending industry and for the highly detail-oriented and conscientious appraiser simply because of the intense pressure to complete jobs as fast as possible.

Some types of residential appraisals are easier to complete than others. The appraisal of a small home in a "cookie cutter" neighborhood where plenty of market data is available is relatively easy. But anyone who believes that this is the normal scenario is mistaken. Every home is different and so is every neighborhood. Most of the work that I do is quite varied and requires enough time to be able to think about the situation and perform a decent analysis. This can be difficult when one has people constantly calling in a panic to get the completed report. So it's a mixed blessing in that I will make more money but deal with more pressure.

Every residential appraiser faces reviews of his or her work from time to time. For one reason or another, a percentage of my reports will be examined by others. I do a lot of this work myself for various clients as part of their quality control system. As time goes by I have gradually seen a deterioration of quality in residential appraisal reports. Not in presentation, for the various brands of report software give beautiful presentations, but deterioration in analysis and detail. The nuts and bolts of the report. Having better than 30 years in the business it is plainly obvious to me that the routine rush nature of mortgage lending appraisals has had a negative effect on appraisal quality. Too much is being overlooked or sped through. Reports are often filled with small errors that should have been caught by proof reading and analyses of problem situations are often shortchanged or omitted. Residential appraisers are simply under too much pressure to get these reports done too quickly in mortgage lending. Of course, there is the greed factor present in every job or profession, that motivates some people to do sloppy or dishonest work as well as the desire to compete, but I believe that time pressure is the primary culprit in deteriorating quality.

In the ever-increasing desire to complete real estate transactions in a flash, lenders have been attempting to make use of software appraisal solutions such as the AVM or Automated Valuation Model. These are basically computer programs that perform an analysis of public and private records to provide an "appraisal" of a home. These AVM products have come increasingly into use as a replacement for the traditional human appraiser, considered much too slow for today's market reality. Being a human appraiser I am naturally inclined to be biased against being replaced by a software program, but I am willing to put these programs to the test to see if they are as reliable and useful as claimed. In writing this article I used an AVM operated by a large corporation and offered by a major banking institution to "appraise" a home for which I recently completed an appraisal. The idea was to see how the two compared.

The home in question is located in a suburban neighborhood that contains a reasonable amount of sales data in the local MLS. If anyone were to do an appraisal or a Competitive Market Analysis, there would be sufficient recent data to do an accurate analysis. I was able to find 3 recent sales of highly similar homes that provided a range of value from about $150,000 to $160,000. The home was under contract for $156,990. The above mentioned AVM provided a value range from $130,000 to $261,000. The "value range" provided by the AVM was so wide and so nebulous as to be of no use whatsoever. If a human appraiser issued a report with a range of value that wide, his or her report would be discarded immediately, for it would be obvious that something was terribly wrong. Yet those same types of AVM ranges are being used to "justify" or "support" contract selling prices and thereby mortgage loans all over the nation.

What does this mean? It means that someone from out of town, not knowing any better, could possibly purchase that home and get as much as 95% (or more) financing on as much as a $261,000 sale price. For a $156,990 home. Don't think it cannot happen out there because it happens far too often. It isn't hard to imagine what will happen later if that loan goes into default and the home is foreclosed. An AVM can have its uses, however, in my estimation it is generally a poor substitute for the human appraisal.

Much has been written about lender "pressure" for appraisers to appraise a home at or above a given price. But I believe that not nearly enough has been written about lenders and others pressuring appraisers to complete reports too quickly. People need time to think about what they are doing. I also believe that not nearly enough has been discussed about the merits of super fast sales and lending practices. Again, people including buyers and borrowers need a little time to think about what they are doing.

Harry E. Davis is a Texas state certified residential real estate appraiser in business since 1975 and serving the Austin Texas metro area. His web site is located at Austin Real Estate Appraiser. Services are available in other Texas cities at El Paso Real Estate Appraiser and San Antonio Real Estate Appraiser

3. Real estate appraisal – is that the real one?

Real estate appraisal or property valuation is the process of determining the value of the property on the basis of the highest and the best use of real property (which basically translates into determining the fair market value of the property).

The person who performs this real estate appraisal exercise is called the real estate appraiser or property valuation surveyor. The value as determined by real estate appraisal is the fair market value. The real estate appraisal is done using various methods and the real estate appraisal values the property as different for difference purposes e.g. the real estate appraisal might assign 2 different values to the same property (Improved value and vacant value) and again the same/similar property might be assigned different values in a residential zone and a commercial zone.

 However, the value assigned as a result of real estate appraisal might not be the value that a real estate investor would consider when evaluating the property for investment. In fact, a real estate investor might completely ignore the value that comes out of real estate appraisal process.

A good real estate investor would evaluate the property on the basis of the developments going on in the region. So real estate appraisal as done by a real estate investor would come up with the value that the real estate investor can get out of the property by buying it at a low price and selling it at a much higher price (as in the present). Similarly, a real estate investor could do his own real estate appraisal for the expected value of the property in, say 2 years time or in 5 years time.

Again, a real estate investor might conduct his real estate appraisal based on what value he/she can create by investing some amount of money in the property i.e. a real estate investor might decide on buying a dirty/scary kind of property (which no one likes) and get some minor repairs, painting etc done in order to increase the value of the property (the value that the real estate investor would get by selling it in the market). So, here the meaning of real estate appraisal changes completely (and can be very different from the value that real estate appraiser would come out with if the real estate appraiser conducted a real estate appraisal exercise on the property).

A real estate investor will generally base his investment decision on this real estate appraisal that he does by himself (or gets done through someone). So, can we then term real estate appraisal as a really real ‘real estate appraisal’?