What is a Realtor's Roll in the Appraisal Process?
October 30, 2014
As a professional full-time Realtor® it is my experience that we make a vital contribution to the appraisal process! The Realtor® has the unique advantage of being able to go inside and view comparable properties and provide distinctions that may not be readily evident. The agent can point out and provide a list of the features and improvements of the property as well as other vital information that demonstrates value. Further, the agent best knows the micro market where the home is located. It is difficult for an appraiser to know every nuance of every market niche.
First, it is important for home buyers and sellers to understand what an appraisal is and is not. According to Dictionary.com, the definition of appraisal is: A valuation of property (e.g. real estate, a business, an antique) by the estimate of an authorized person. True fair market value of any commodity is arrived at, real estate included, when a buyer and seller agree to a price with specific terms and consummate the transaction, neither party is under duress, the parties are unrelated and thus at an “arms length”, the commodity has had adequate exposure to the open market and financing terms are typical.
Many people assume that an appraisal determines fair market value. The short answer is “no”, an appraisal is not fair market value. But as is so often the case, the answer is more complicated than a simple yes or no can provide.
There are three means that appraisers utilize typically to arrive at value: the cost approach, the sales comparison approach and the income capitalization approach. The most common approach for an appraisal in the obtaining of a mortgage or refinancing of a home is the sales comparison method. It is based on the principle of substitution. That is, an intelligent purchaser will pay no more for a property than it would cost to purchase a comparable substitute property. The more homogeneous a property is and the more stable the market conditions, the easier it is to obtain comparables and thus the closer the appraisal will be to fair market value.
There is a delayed reaction that occurs with an appraisal because the process requires the appraiser to look in the past at settled transactions and those that are already under contract and fair market value occurs in the present, in real time. Further, since the most unique factor of real estate is its location, which fundamentally cannot be changed, true substitution can never really occur. So what occurs is an estimation of value based on many factors put into a formula and that from my perspective is not the same as fair market value.
A professional Realtor® is the best source for understanding the factors that contribute to market value of real estate. Karen Briscoe and Lizzy Conroy are active and experienced Realtors ® in the Northern Virginia, Washington DC and suburban Maryland market place and would be delighted to assist whether for home buying or selling. Please contact via the means most convenient for you: www.HBCRealtyGroup.com, 703-734-0192, Homes@HBCRealtyGroup.com.
