Before consumers purchase a home, or refinance an existing mortgage, obtaining an appraisal is a crucial step in the process. However, some misconceptions exist about appraisals and appraisers and the Appraisal Institute encourages homeowners and prospective homebuyers to understand the following myths and realities.
Reality: While most states support the concept that assessed value approximates estimated market value, this often is not the case.
Myth: The appraised value of a property will vary, depending upon whether the appraisal is conducted for the buyer or the seller.
Reality: The appraiser has no vested interest in the outcome of the appraisal and should render services with independence, objectivity and impartiality.
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 being under pressure to buy or sell. Replacement cost is the dollar amount required to reconstruct a property in-kind.
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.
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.
Myth: Because consumers pay for appraisals, they own their appraisal.
Reality: The appraisal is legally owned by the lender — unless the lender “releases its interest” in the document. However, lenders must provide property buyers with free copies of appraisals promptly after completion, or no later than three days before the loan closes whichever is earlier.
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 by reading a copy of their appraisal can consumers double-check its accuracy and question the result. Also, it makes a valuable record for future reference.
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