Inside Real Estate: Why Are Appraisers Needed?

Real estate appraisers arrive at a property value by comparing the property to other properties, looking at market value. What if you have updated your house yourself and kept all your receipts? You may be wondering if you can just add that to the original cost of your house. Or what if you read on the internet that the cost of houses in your city is increasing by so much per year - can't you just do the math yourself?

I wish it was that easy. Although all the hard labor you put into your house is very valuable to you, it may not mean as much to someone considering the purchase of your house. Buyers pay attention to market value, not the value that you have put into your house. Market value is what a motivated buyer is willing to spend on your house, but, in order to be accurate, the buyer must not be emotionally involved in your hard work. The buyer is emotionally involved in seeing themselves in your house, instead. Their tastes might be different from you and they probably care about different things than you do. Sellers and buyers definitely look at the same house differently.

This is why selling a house is hard work for the seller. It means letting go of memories and trusting that someone else will make new memories with their house. And this is why it's important to have a real estate appraiser do the work of impartially researching the value of your property.

Inside Real Estate: What Appraisers Do

Lenders usually require an appraisal done before financing is approved. That is done to make sure that the lender is not authorizing more money than the property is worth. There is an organization, the Appraisal Foundation, which establishes national qualifications and standards for practicing appraisers. Then each state has its own requirements. If you want to find a licensed appraiser on your own, you can go to the Appraisal Institute. You can enter your zip code and find a list of appraisers who are members of the institute. You can also find out about those initials after the appraiser's names, like MAI, SRA, and SRPA.

But what do appraisers do? When picking a listing price for your house, you could look at recently sold properties, currently listed properties, and properties that were taken off the market without selling. Appraisers look at recently sold properties, but they also look at so much more. They look at the national, regional, and even neighborhood trends. They look at the physical conditions of the property. When they compare the property to other properties, they are usually looking at market value.

Once an appraiser has done the market research of your house, the neighborhood, and real estate trends, the appraiser analyzes the information usually using three approaches. They are the sales or market approach (comparing it with other properties sold), the cost approach (how much would it cost to rebuild it at today's prices), and income approach (how much money, like rent, could be gotten from the property). He or she picks the "highest and best use." If your house is in a residential neighborhood, its highest and best use is usually to be used as a residential property. He or she reconciles the estimated values to get the final estimate. Then he or she prepares a report with all of that information.

The most important thing to remember is that the appraiser doesn't create the value of the property. He or she does research and then verifies the value with the appraising tools.