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How to find true value in the appraisal process

by Broderick Perkins

(01/17/2011) - Home buyers and sellers who know the role of professional, licensed appraisers can be sure homes are financed based on true values and enjoy a smooth transaction.

That sentiment has prompted the Appraisal Institute to offer consumers the timely "Helpful Tips: What Consumers Need to Know About Real Estate Appraisals."

The publication comes just as the appraisal industry is being served a new set of regulations stemming from federal regulatory overhaul known as "Wall Street Reform" (officially, the "Dodd-Frank Wall Street Reform and Consumer Protection Act").

The new rules are designed to protect consumers and keep appraisers independent, free from third party pressure, honest and compensated fairly.

The institute says "Appraisers have been wrongly accused of prolonging the nation's real estate downturn by developing value opinions that are below proposed sale prices."

To the contrary, "Credible and realistic value opinions help to stabilize real estate loans and investments, which promotes socially desirable real estate development. Appraisals are particularly valuable because they are an objective and unbiased source of real estate information," the institute says.

"Too many consumers in this struggling real estate market face problems with appraisals when attempting to buy or sell a home," said Appraisal Institute President Joseph C. Magdziarz, MAI, SRA. "But rather than passively endure delays in closing a sale, home owners and buyers can take proactive steps to avoid pitfalls," he added.

According to the institute, here's what consumers need to know.

• Learn the role of mortgage appraisals. Lenders order appraisals to learn what a property is worth in the open market so they can determine if the collateral supports the loan. Not necessarily provided to confirm a sales price, appraisals can help both lenders and consumers make sound financial decisions.

• Hire a qualified appraiser. Demand the use of a qualified, experienced, licensed appraiser. Memberships in good standing with a state or national trade group also provides some evidence the appraiser knows his or her stuff. Ask the lender for the appraiser's qualifications.

• Join the inspection. The institute says consumers can ask the lender if he or she can accompany appraisers on the inspection tour. Sellers may provide the appraiser with information they consider important. Take notes. Did the appraiser spend enough time at the property to observe important features or improvements or potential problems?

• Get the appraisal disclosed and examine the report. Consumers have a right to a copy of the appraisal under federal law. Look for common errors including misuse of adjustments to comparables, disregarding special financing and concessions, or miscalculation of the living area.

• Appeal the appraisal or get a second opinion. Lenders typically offer appraisal appeal procedures, known as "Reconsiderations of Value." If you are aware of recent, comparable sales information or items that may not have been available or considered by the appraiser, provide those to your lender.

If problems are found with the first appraisal, you should obtain a second appraisal. Make sure your lender uses a qualified appraiser the second time, if they didn't the first time around.

• When necessary, complain. File legitimate complaints with the appropriate state appraisal board, regulatory agency or professional appraisal organizations. Federal law mandates that lenders report legitimate complaints with appropriate regulatory authorities.

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