Appraisers are trained individuals who set the property value of a dwelling in dollar terms for lenders. They inspect the inside and outside of a house and make note of damage, the age of major installed appliances (like heating and air conditioning), and exterior elements, including whether the boundaries of a property match exactly the plat of survey. Generally, their job is to confirm whether your loan will “appraise out” — in other words, they confirm that the property you are buying or trying to refinance provides adequate collateral through its own land and structural value to back up the loan.
Appraisers should be objective third parties with no financial or other connection to any person involved in the transaction. In reality, most appraisers are contracted by lenders to provide them the data they want.
You have the right to see the appraisal report on your property or the property you're trying to buy. Here's what a standard appraisal report should include:
Depending on what state law requires, the appraiser will give a general description of the property in question with comparable detail on similar properties in the neighborhood.
The appraisal will include a formal description of the real estate market in the immediate area.
Notations of negatives that could affect the property's value will be included, such as major evidence of poor repair or events happening in the neighborhood that could diminish property values.
For income property, the appraisal will include income for the property compared to similar properties in the neighborhood.
As home prices have climbed to record levels, some appraisers have come under criticism for over-valuing real estate and possibly admitting too many risky borrowers. During the summer of 2005, several leading national banks began to change their policy of hiring outside appraisers, bringing many appraisers on as full-time staff with tighter restrictions on how aggressively they could set values.
Appraisers may receive certification and training through private education courses and community colleges. Appraisers are trained in the Uniform Standards of Professional Appraisal Practice (USPAP), the generally accepted standards for professional appraisal practice in North America.
Appraisers may save you a bundle. If your lender's appraisal comes in significantly lower than the agreed-upon selling price, it might mean that the seller was trying to sneak some serious trouble past you. Granted, it may lead to some disappointment, but it will save you from making a bad decision.