This article was originally published in The Galveston County Daily News on 3/2 as part of my weekly 2019 column.
In a previous column, I wrote about the dreaded tax appraisal. Today, the one we pay for and fear the outcome being too low rather than too high is in my thoughts. When you are borrowing money for a house, the lender needs assurance that the house is actually worth what you are paying for it. Realtors work with a comparative market analysis or CMA which is based on available data from the multiple listing service, or MLS. It is the method used to help buyers and sellers determine realistic asking and offering prices. Appraisals are very detailed reports compiled by licensed appraisers. An appraisal is the only report accepted by lenders to make a decision whether to loan the money.
An appraisal is not the same as a home inspection. A home inspection checks the structural and mechanical systems of a house. I will admit, both FHA and VA appraisals also, to a limited extent, inspect the property as part of their work; they not only want to confirm the value, but they want to ensure the buyers aren't buying an unsafe house or a house with major items nearing the end of their lifespan. But, for a conventional loan, the appraiser is only concerned about valuation.
Appraisers are licensed by the state of Texas and have completed 9 hours of education followed by 1000 hours of experience as a trainee over a minimum of 6 months.
The appraiser must be an objective third party, someone with no personal connection to the property or involved parties. Appraisers are handled through appraisal management companies who ensure that there is separation between the lender and the appraiser. They work with a pool of qualified appraisers and assign the work, review it to ensure it meets their standards, and then submit it to the lender.
Appraisals are detailed reports based on on-site valuation as well as sales data. They include details about the subject property along with comparisons for similar properties. Comments on the real estate market in the area are also included.