Residential Appraisal Myth Busters

Most professions have myths that could tarnish an individuals reputation. I will attempt to highlight ten common misconceptions regarding residential valuations.

Myth: My assessment should always equate to the market value.
Truth: Most provinces strive to support this train of thought however in realty this is generally never the case. For example, if the homeowner has completed recent renovations that the assessor may not be aware of, the assessed value may not reflect the overall condition of the property. On the other extreme, if the property has not seen modernization or typical upkeep- which is identified as differed maintenance, all of which could create an over assessed value.


Myth: The appraised value of a property will vary, depending upon whether the appraisal is conducted for the buyer or the seller.
Reality: If the appraiser has a vested interest in the property it is against professional standards to complete the valuation. In all assignments, the appraiser should render services with independence, objectivity and impartiality - no matter for whom the appraisal is conducted. There should be no variances for the final estimate of value, whether the report is being completed for the buying party, selling party or their financial institution.


Myth: Market value should approximate replacement cost.
Reality: Market value is based on what a willing buyer likely would pay a willing seller for a particular property, with neither party being under pressure to buy or sell. Replacement cost is the dollar amount required to reconstruct a property in-kind. Replacement cost can exceed the final estimate of market value if: the property overbuilt for the market, there extreme elements within a property that a typical purchaser would not typical pay for in the local market, various forms of depreciation and so forth.


Myth: Appraisers use a formula, such as a specific price per square foot, to figure out the value of a home.
Reality: Appraisers make a detailed analysis of all factors pertaining to the value of a home including but not limited to: its location, condition, size, proximity to facilities and recent sale prices for comparable properties. Unless the appraiser is dealing with a condominium development or a subdivision that offers identical style homes and identical finishes that have been completed by the same builder, a price per square foot may not represent true market norms.


Myth: In a robust economy - when the sales 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.
Reality: 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 evident both in appreciating market and depreciating markets.


Myth: You generally can tell what a property is worth simply by looking at the outside.
Reality: Property value is determined by a number of factors, including location, condition, improvements, amenities, and market trends. The most comprehensive appraisal report requires an interior inspection of the property, which in turn identifies any common and unique variables within the dwelling and is a central characteristic when completing an appraisal report.


Myth: Because consumers pay for appraisals when applying for loans to purchase or refinance real estate, they own their appraisal.
Reality: 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 discretion of the particular client and/or lender.


Myth: Consumers need not be concerned with what is in the appraisal document so long as it satisfies the needs of their lending institution.
Reality: Only if consumers read a copy of their appraisal can they double-check its accuracy and question the result. Also, it makes 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: Appraisers are hired only to estimate real estate property values in property sales involving mortgage-lending transactions.
Reality: Depending upon their qualifications and designations, appraisers provide a wide spectrum of services, which includes: advice for estate planning, dispute resolution, corporate relocation's, before / after proposed renovations, zoning and tax assessment review and cost/benefit analysis. Other types of unique valuations include: bio hazard valuations, fire loss for insurance replacement purposes, retrospective appraisals and prospective appraisals.


Myth: An Appraisal is the same as a home inspection.
Reality: An Appraisal does not serve the same purpose as an inspection. The Appraiser forms an opinion of value in the Appraisal process and resulting report. A home inspector determines the condition of the home and its major components and reports these findings.


As you can appreciate, appraiser complete a wide variety of assignment for a great deal of clients. We hope you have learned at the very least, one new element within the appraisal process.