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Common Myths about Appraisals in the Home-Buying Process

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By David S. Bunton

Real Estate Brokers:

Myth: Real estate brokers are prohibited from communicating with appraisers.
o Fact: Brokers are permitted to communicate with an appraiser and to provide them with additional information as long as the communication is not intended to unduly influence the outcome of the appraisal. The exchange of relevant information- including terms of the sale, relevant comps, and home improvements-can help an appraiser develop a more credible opinion of value.

Myth: Nothing can be done if a broker has concerns or questions regarding a completed appraisal.
o Fact: If there are questions or concerns with an appraisal, there are concrete steps brokers can take through the lender, 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: Appraisers request copies of the purchase agreement from brokers simply so they’ll know how much to appraise the home for.
o Fact: Appraisers are required to review the purchase agreement (if available during the ordinary course of business) to fully understand the terms of the transaction. Appraisers don’t simply look at a pending sale price and try to “justify” the transaction. The perform research and analysis to provide their own opinion of value.

Homebuilders:

Myth: Homebuilders are prohibited from communicating with appraisers.
o Fact: Builders are permitted to communicate with an appraiser and to provide them with additional information as long as the communication is not intended to unduly influence the outcome of the appraisal. The exchange of relevant information- including construction features, details, and upgrades, as well as relevant comps-can help an appraiser develop a more credible opinion of value.

Myths: Nothing can be done if a builder has concerns or questions regarding a completed appraisal.
o Fact: If there are questions or concerns with an appraisal, there are concrete steps builders can take through the lender, 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: Appraisers only rely on comparable sales and do not take into account the cost to build a home.
o Fact: Appraisers do need to consider the cost to build a home and, at times, must perform a cost approach to deliver a credible appraisal. However, because cost does not always equal value, appraisers cannot simply look at what it costs to build a home to provide an opinion of value. They must perform research and analysis to determine what the marketplace is willing to pay.

David S. Bunton is the President of The Appraisal Foundation.

For more information visit www.appraisalfoundation.org.

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