Real Estate Appraisal – An Indispensable Business

Appraisers play an important role in the real estate industry. Real property transactions entail significant financial commitments for home buyers and mortgage lenders. If a buyer overpays for a house, it will take many years of equity build-up before the loss is offset.

The mortgage lender faces the risk of financial loss if they make a loan on a home when the sale price exceeds the actual worth of the property. It’s the appraiser’s expertise that enables buyers, sellers, lenders, and investors to make prudent decisions regarding these transactions.

The service provided by a real estate appraiser is crucial to the mortgage lending industry and to the millions of people who purchase homes and businesses. The work of the appraiser provides the mortgage lender with the assurance that the property securing a loan is of sufficient value to repay the loan in the event of a default by the borrower.

Similarly, the purchaser of a home or investment property can buy with confidence when they have gotten an opinion of value from a professional appraiser. An appraiser’s market value estimate is an objective and independent opinion based on current market evidence.

Why is an appraisal indispensable? After all, many other buying, selling and lending transactions do not require appraisals. The answer lies in the inherent characteristics of real estate.

Two of these characteristics are notable. The first is uniqueness. Every piece of real property is distinctly unique. There are no two properties that are 100% identical. This uniqueness makes it difficult to determine the value of a property by noting the prices of other properties.

The second is immobility. Real estate is fixed in place. This makes it susceptible to the influence of surrounding properties and property uses.

It also means that the market area for the property is strictly local. As the saying goes, “location, location, location,” are the three most important things about real estate.

Since all real property markets are local, comparisons across markets are hazardous. An appraiser’s market analysis is focused on the local market, resulting in a limited amount of market evidence. For the inexperienced and the experienced, determining value is a challenge.

Price is everything when buying a home or acquiring an investment. A competent appraiser can establish the worth of the property before a critical buying decision is made.

The relatively high price of real estate means that large sums of money are at risk each time property is sold, purchased, or financed. The cornerstone of prudent decision-making is an appraisal of the property by a qualified appraiser.

For the real estate market and the lending industry, real estate appraisal is an indispensable business.