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Common Myths about Appraisals in the Home-Buying Process

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By David S. Bunton

house_appraisal_conceptAt The Appraisal Foundation, we often encounter misperceptions about the appraisal process in real estate transactions – from how an appraisal is ordered and carried out, to the type of communication permitted with appraisers. As a result, we have compiled the most common myths that we hear from lenders, borrowers, real estate brokers, and homebuilders.

Whether you’re a first-time homebuyer or a real estate professional with years of experience, you may be surprised.

Lenders:

Myth: A lender and an appraiser cannot communicate before, during or after an appraisal is complete.
o Fact: Not only are lenders permitted to talk to appraisers, they must. Communication is essential for the exchange of appropriate information, including the intended use of the appraisal, the scope of the work necessary for credible assignment results, and more.

Myth: Nothing can be done if a lender has concerns or questions regarding a completed appraisal.
o Fact: If there are questions or concerns with an appraisal, there are concrete steps lenders can take, like submit additional comps for the appraiser to consider, request the appraiser correct errors in the appraisal report, and ask the appraiser to provide further detail to explain his/her conclusion.

Myth: Lenders must use an Appraisal Management Company (AMC) to order an appraisal.
o Fact: Lenders are entitled to engage an appraiser directly. However, to avoid any potential undue influence on the appraiser, certain safeguards are required (e.g. in most cases the person at the lending institution selecting the appraiser cannot be the same person approving the loan).

Myth: AMCs are necessary to ensure that appraisers aren’t influenced by lenders.
o Fact: Regardless of whether an AMC is used, lenders are not permitted to influence the value of a home, and licensed and certified appraisers are required by law to follow strict guidelines (i.e. the Uniform Standards of Professional Appraisal Practice) that guarantee an unbiased and meaningful analysis of value.

Borrowers:

Myth: An appraiser is hired by the borrower.
o Fact: Even though the borrower may be responsible for the cost of an appraisal, appraisers are hired by lenders. Appraisers provide an analysis of the collateral, so that lenders understand the value of a property when making the loan decision.

Myth: The money put into a home translates dollar-for-dollar into a higher appraisal.
o Fact: The cost put into a home improvement project may very well add value to a home; however, the value of any improvements are based on what the market is willing to pay for them, and may not necessarily correlate to the cost. Not all renovations positively impact property values.

Myth: Appraisers set the value of a home.
o Fact: Appraisers don’t set the value of a home, nor do they confirm a home’s sale price. Their role is to produce a credible opinion of value which reflects the current market.

Myth: Appraisers and home inspectors perform the same function.
o Fact: Though both provide crucial information, their roles are very different. An appraiser provides an objective, unbiased analysis so the lender can better understand the value of a property. An inspector is typically hired by the borrower and performs an objective visual examination of the physical structure and systems of a house to ensure the structural integrity of the property.

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