What Do Appraisers Really Do?

Homebuyers and sellers may be surprised to find out the truth about an appraiser’s loyalty.

An appraiser is one of the most important people in a home-buying transaction. Yet few homebuyers or sellers understand the facts about who appraisers are or what they do.

The most common misperception is that the appraiser represents the homebuyer. That mistaken idea is understandable since the buyer typically pays for the appraisal. But in fact, appraisers are hired by lenders, and appraisals typically are done not to make sure the buyer doesn’t overpay for the home, but to assure the lender that the home won’t be mortgaged for more than a certain percentage of its value. An appraisal isn’t a historical record or prediction of the home’s value. Nor is it an inspection of the home’s condition. An appraiser may consider house price trends or identify obviously hazardous conditions inside the home, but the appraiser’s main focus is on the home’s overall appeal and salability, and how it compares with other homes in the area.

An appraisal contingency, which allows the buyer to cancel the deal if the appraised value of the home isn’t equal to or more than the purchase price, is a wise precaution. The contingency must be written into the sales contract to be enforceable.

Buyers should request a copy of the appraiser’s report and be sure they understand it. Some lenders provide a copy automatically; others do so only if the borrower completes a form.

Appraisers are regulated by state law, which requires them to meet certain qualifications, conform to certain standards and be licensed. Licensure typically requires many hours of education and experience, plus an exam.

The lender’s power to choose the appraiser has been controversial because some lenders have been accused of putting undue pressure on appraisers to modify their reports to fit the lender’s purposes. A proposed Home Valuation Code of Conduct would attempt to remedy that situation by forcing lenders to hire appraisers through appraisal management companies or perhaps state government agencies, which supposedly would hand out assignments on an impartial basis.

The proposed code is part of an agreement between New York Attorney General Andrew Cuomo and Fannie Mae and Freddie Mac, the two quasi-governmental corporations that buy most U.S. mortgages. But it is controversial as well. How the code will be implemented and whether it will be applied nationally are issues of great concern to appraisers today.

Source: cyberhomes.com