Myth: An Appraisal is the same as a home inspection.
Truth: An appraisal and the home inspection serve two different purposes. The appraiser develops an opinion of value of the real estate (land and structures), while a home inspector determines the condition of the home and its major components and reports these findings to the lender.
Myth: Appraisers are hired only to estimate real estate property values in property sales involving mortgage-lending transactions.
Truth: Depending upon their qualifications, appraisers can provide a variety of services including advice for estate planning, dispute resolution, zoning or tax assessment review, and cost/benefit analysis.
Myth: The appraised value of a property will vary, depending upon whether the appraisal is conducted for the buyer or the seller.
Truth: The appraiser has no vested interest in the outcome of the appraisal and should render services with independence, objectivity and impartiality – regardless of whom the appraisal is conducted.
Myth: Appraisers use a formula, such as a price per square foot, to determine the value of a home.
Truth: Appraisers make a detailed analysis of all factors pertaining to the value of a home including its location, condition, size, proximity to facilities and recent sale prices of comparable properties.
Myth: The market value of a property should be equal to its replacement cost.
Truth: Market value is based on what a willing buyer likely would pay a willing seller for a particular property, with neither being under pressure to buy or sell. Replacement cost, however, is the dollar amount required to reconstruct a like-kind property.
Myth: You can generally determine what a property is worth simply by looking at the outside.
Truth: Property value is determined by a number of factors, including location, exterior and interior condition, improvements, amenities, and market trends.
Myth: Since consumers pay for appraisals when applying for loans to purchase or refinance real estate, they own their appraisal.
Truth: The appraisal is, in fact, legally owned by the lender – unless the lender “releases its interest” in the document. However, consumers must be given a copy of the appraisal report, upon written request, under the Equal Credit Opportunity Act.
Myth: Consumers do not need to be concerned with the details of the appraisal document as long as it satisfies the needs of their lending institution.
Truth: Consumers should read a copy of their appraisal so they can verify its accuracy. Also, the report is a valuable record for future reference, containing useful and often-revealing information including the legal and physical description of the property, square footage measurements, list of comparable properties in the neighborhood, neighborhood description and a narrative of current real-estate activity and/or market trends in the vicinity.
Myth: Assessed value should equal market value.
Truth: While most states support the concept that assessed value should be similar to estimated market value, this is often not the case. For example, when interior remodeling has occurred, the assessor is unaware of the improvements. Also, when properties in the neighborhood have not been reassessed for an extended period, these two values will vary.
Myth: In a growing economy, when the sale prices of homes in a given area are reported to be rising by a particular percentage, the value of individual properties in the area can be expected to appreciate by that same percentage.
Truth: 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 economic times as well as bad.