Some Myths and Realities About
Real Estate Appraisals and Appraisers
We at Reynolds Appraisal Services understand that there are many misconceptions regarding the appraisal process and profession. Below are some common myths regarding our profession. Please feel free to contact us if you have any other questions.
Reynolds Appraisal Services, LLC (541) 382-2002
Myth: Assessed value (from property tax assessor) should equate to market value.
Reality: While the Assessor's real market value estimate on your property tax statement should approximate market value, this often is not the case. Examples include when interior remodeling has occurred and the assessor is unaware of the improvements, or when properties in the vicinity have not been reassessed for an extended period. Also, property tax assessments are based on older data, therefore when property values in the area change rapidly the assessed value will take at least a year to begin to reflect the changes.
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 - no matter for whom the appraisal is conducted.
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. For newer construction in some markets the replacement cost may be an effective indication of the market value. This depends on the type and style of construction, the availability of similar sites, and the mood of the market. In some markets buyers value the ability to construct a home to their own personal tastes while in other markets buyers are willing to pay a premium for existing construction where they don't have to wait for the home to be built.
Myth: Appraisers use a formula, such as a specific price per square foot, to figure out the value of a home.
Reality: Appraisers make a detailed analysis of all factors pertaining to the value of a home including its location, condition, size, proximity to facilities and recent sale prices of comparable properties. Price per square foot calculations overlook important items such as quality, condition, site size, amenities, garages, views, locational factors, etc...
Myth: In a dynamic economy - when the sales prices of homes in a given area are reported to change by a particular percentage - the value of individual properties in the area can be expected to change by a similar percentage.
Reality: Percentage changes are often highly generalized and do not reflect specific property types in Central Oregon's various sub-markets. Commonly, property values in a specific price-range or neighborhood will be either moving in a different direction than the overall market or moving at a different rate than the overall market. In addition, average percentage changes are often distorted by non-typical sales or sales with unusual buyer or seller motivations. The value of a specific property must be determined on an individualized basis, factoring in data on comparable properties and other relevant considerations. This is true in good times as well as bad.
Myth: Because consumers pay for appraisals when applying for loans to purchase or refinance real estate, they own their appraisal.
Reality: In most cases the appraisal is, in fact, legally owned by the lender - unless the lender "releases its interest" in the document. Consumers can typically request a copy of the appraisal report from their lender.
Myth: On-line valuation services give a reliable estimate of property values.
Reality: On-line services claiming to provide a reliable indication of property values are notoriously unreliable. These services often use county records and public recording data to formulate their "values". Even if county records relating to your property are correct, the records for the comparable properties may be incorrect. In addition, the sales utilized in their valuations are often not at all similar to the subject property. Acreage properties are compared to non-acreage properties, riverfront properties are compared to interior lots, quality differences are completely ignored, condition and remodeling is unknown, and outbuildings are overlooked.
Myth: An Appraisal is the same as a home inspection.
Reality: An appraisal does not serve the same purpose as a home inspection. The appraiser typically performs the appraisal for the lender in a mortgage transaction. The appraisal allows the lender to make an informed decision regarding the loan approval. The appraiser performs a cursory inspection of the home in an attempt to formulate an opinion regarding the overall market value of the property.
Home inspectors complete an in-depth inspection of the home (structure and mechanical systems) to provide the buyer an unbiased indication of the condition of the home and indicate items in need of repair.
In a purchase transaction the home inspector typically works for the buyer while the appraiser typically works for the lender. Home inspectors and appraisers have different licensing requirements, different experience, and different training and inspect different aspects of the property.
We at Reynolds Appraisal Services always recommend that a buyer have a home inspection performed, even on new construction.
