Why Hire an Appraiser?
While appraisal is an opinion of value and an opinion is not a fact, the analysis of buyer’s decisions in the market place has worked for decades. The other important fact about appraisal of used residential property is that it establishes value, and value can only be determined at a moment in time.
To establish value of your property, a real estate licensee can do a comparative market analysis which is created in much the same way as is an appraisal. However, the real estate licensee does not have the knowledge and education that comes from meeting the requirements for appraisal licensing. While appraisers will sometimes contact real estate licensees for information about the sale of the property, they are generally trying to refine the quality of the property as a comparable for the one that is being appraised. Because of the number of foreclosure sales in today's real estate market, it has become much more difficult for an appraiser to determine value. This information comes from appraisers who are currently trying to figure out how to approach the question of market vallue. If an appraiser is having trouble today finding comparable properties and figuring out what to do with them, real estate agents are probably having a harder time.
In certain markets, it becomes difficult for a real estate licensee to perform a good market analysis. This is particularly true in a market that is falling, i.e., one changing from a seller’s market to a buyer’s market. It becomes obvious that the market is changing when the marketing time for properties begins to lengthen or shorten. In a slowing market, it becomes increasingly difficult to find comparable sales to use to establish value for a property you are trying to list because there are no sale prices to look at except for those that are out of date. Under these circumstances, the best recommendation to a buyer may be that s/he hire an appraiser to determine if the price s/he offers is within market value. In a strong seller’s market, comparable property sales are easy to come by, but market value changes very rapidly.
There are good reasons that comparable properties must come from the square mile in which the subject property is located. The word, “comparable” means “similar” or “like.” Once you move outside the immediate area in which the property under consideration is located, significant factors change. Schools change; environmental issues change; ratio of business to residential properties change; proximity of highways, railroads, airports change. Even within the one square mile there can be differences which will discount certain areas. If this is true, how can a property one mile or ten miles away be comparable. It simply does not reflect any good indicator of the market where you are looking. The value of real property is highly dependent on the situs of the property - location, location, location. The further from the subject property a comparable is located, the less accurate the information will be.
Another significant issue to buyers and sellers regarding appraisal is that lenders are typically doing more than one appraisal to determine whether a borrower's loan will close or not. A borrower, in interviewing a lender, should inquire as to how the matter of the value of the property the borrower purchases will be determined. Will there be a second appraisal prior to closing that could affect the ability of the borrower's loan to close. Who does that appraisal? Is it a local appraiser or an appraiser that an out of state lender has a contact or a contract with who is not in the immediate area where the property being purchased is located? If this last answer is yes, the next question should be about how the buyer/borrower can assure that the appraisal is based on current issues in the area of the property. While a buyer does not want to pay too much and as a borrower, s/he doesn't want to borrow too much, the person, at the same time, does not want to lose a property they really want because an appraiser from Saginaw doesn't know the Canton Area and mis-appraises a property there.
To protect yourself as a buyer, you must take control of the situation. It is a great time to buy, but be careful to do the proper due diligence.
