Can a Real Estate Agent Do an Appraisal? Let’s find out!
Introduction
Are you an aspiring real estate appraiser? Maybe you already have some years of experience in the real estate industry as a salesperson or a broker.
Irrespective of where you are in your professional journey, understanding how a property is valued and appraised is a must if you want to grow in your career.
Let us now check the concept of what is appraisal in real estate. For a short answer - an appraisal is the process of determining to determine and finding out the genuine value of a property, whether commercial or residential.
However, completing real estate appraisal is a fairly complex and detailed task in itself even though it is critical in any real estate transaction.
Understanding how real estate appraisal works is a great skill to add to your professional repertoire, especially if you are a salesperson or a broker looking to get more value for your services.
If you are new or unfamiliar with the concept of appraisal in real estate - we will cover the what, why, and how in this article.
By the end of this article, you will learn everything about real estate appraisals - what they mean, why they are important, and how to appraise a property objectively.
So keep on reading to find out everything about why and how to appraise property as we dive deeper into the world of appraisals in real estate.
Background on Real Estate Appraisals
Before we talk in detail about the appraisal process in real estate, it is important to learn about the background of real estate appraisals.
An appraisal is a process through which a property’s buyer or seller can find the fair market value.
Whenever a house is listed on the market for sale or purchase, the seller or the buyer contacts and appoints a real estate appraiser to check and evaluate whether the asking price is accurate for the listed property or not.
Real estate appraisals are conducted whenever there is a need to determine the accurate, objective value of a commercial or residential property.
Therefore, an appraiser is a third party who is responsible for ensuring fair market value for any property for sale. Once the appraising process is completed, the real estate appraiser formulates the findings and compiles them in a report, which is then shared with their client.
Usually, an appraisal is conducted whenever there is an involvement of loans, mortgages, or financing in a real estate transaction. This is because any financial institution like a lender or a bank wants to evaluate the current and most accurate valuation of a property.
An appraisal considers numerous factors in determining the fair value of a property, including:
- Size of a property
- Location of a property
- Floor plan of a property
- Amenities of a property
- Fixtures of a property
When real estate appraisers perform this analysis, they come up with a detailed report that covers some key aspects related to a property’s valuation:
- Description of a property, including its address, legal information, layout, size, type of property, and any specific features.
- Neighborhoods of a property, including its local amenities, market analysis, and economic conditions.
- Sales data of similar or comparable properties in the same neighborhood, including comparative analysis for recently sold or appraised properties.
Besides the above information, an appraisal analysis report can also cover additional details, such as - photos of the interior/exterior of a property, adjustments, evaluation of the land, and zoning information among other information and assumptions.
Difference Between Real Estate Agent and Appraiser
Whenever industry professionals or clients talk of appraisal for real estate, they often use common terms interchangeably. This leads to common misconceptions and confusion regarding new and upcoming real estate professionals.
Let’s start with our first example - it is very common to confuse a real estate appraisal with a real estate inspection.
These two terms might sound or seem similar, but they are quite different in reality. Starting with the similarities - both inspection and appraisal of a property are acts conducted to evaluate a property’s value and determine whether the asking or selling price is fairly decided or not.
Speaking of the differences between the two - an inspection is done to perform a more in-depth look at a property’s condition, especially its interior parts. These include inspecting plumbing, outlets, electrical fittings, shafts, HVACs, and other installations and fixtures.
On the other hand, a real estate appraisal is more concerned about external factors, including the location of the property, neighborhood, lifestyle options, and its proximity to popular destinations like shopping centers and entertainment parks and useful amenities such as hospitals, and schools.
Now let us take another example where similar seeming real estate job titles can often have completely different roles and functions.
One such example is when you think about a real estate agent and an appraiser.
A real estate agent is a professional who is responsible for guiding and assisting buyers and sellers in making a real estate transaction such as - selling, renting, leasing, or purchasing.
A real estate agent works directly with property owners and buyers to advise both parties on how to get maximum value for their property or money.
On the other hand, a real estate appraiser is primarily responsible for appraising real estate, including commercial and residential property. They conduct visits, site checks, inspections, and surveys to assess and evaluate the fair market value of a property.
One common question that often arises is - can a real estate agent do an appraisal?
The short answer is - it depends on the expectation of the client. A real estate agent who understands the local market, current housing trends, and various influencing factors can provide a rough estimate of a property’s value.
However, only a licensed appraiser can provide an official appraised value and report which can be used to make an informed decision. This evaluation forms the basis of a property’s value when forming a mortgage or lending agreement by a bank or property owner.
Real estate agents and appraisers often work together but their specific roles and responsibilities differ. Let’s find out more about them in detail below.
The Functions of a Real Estate Agent
Most people think of real estate agents as intermediaries, however, in reality, they are facilitators and enablers who assist property sellers and buyers directly.
Here are some of the key job duties and responsibilities of a licensed real estate agent:
- Showcase the property to prospective buyers and clients through site visits and virtual tours.
- Represent the best interests of their clients, be they buyers or sellers, and ensure proper documentation, legal compliance, and ethical standards.
- Advise the property owner regarding the market trends and guide the buyers concerning their needs and choices to find suitable properties.
- Manage the property on behalf of a property owner or investor and coordinate with tenants for collecting rent and managing lease.
- Promote the property to prospective buyers using marketing materials and advertising across online and offline channels.
- Prepare and manage all the paperwork such as deeds, loan papers, and property registration related to buying and selling of a property.
Next, let us look into the job responsibilities and duties of a real estate appraiser in detail.
Roles and Responsibilities of an Appraiser
Here are some of the key responsibilities and duties of a real estate appraiser:
- Evaluate the fair market value of a property based on the location, neighborhood, size, utilities, specific features, unique characteristics, and what similar homes in the area are selling for.
- Ensure the value of a property is based on current market trends and housing data while comparing property descriptions, market data, and legal documents.
- Understand and explain a range of data, research, trends, information, and analysis to their clients to enable clients to make informed decisions.
Generally, a real estate appraiser can earn an average salary of $50K to $80K annually.
What is Appraisal in Real Estate?
Meaning and Scope of Real Estate Appraisal
Whenever you need to evaluate and determine a fair or precise value for a property, the need to call a real estate appraiser arises.
But what exactly does an appraiser do? How do appraisals work and what are some of the key factors which determine or influence a property’s appraisal?
Firstly, let us understand the meaning of appraisal in real estate. By definition, an appraisal is a third-party review and evaluation conducted by a qualified real estate professional to determine the fair value of a property.
The scope of real estate appraisal goes beyond the fair valuation of a property. Appraisals are also used as a means to protect the rights of consumers.
For example - by evaluating the fair market value of a property, a prospective buyer can ensure they are not overpaying for real estate. Thus, appraisals can be used as a negotiation tool by buyers.
Similarly, lenders also want to ensure that the amount they are lending to potential homeowners is based on accurate housing market data and current market valuation of similar properties.
Types of Appraisals in Real Estate
The appraisal process in real estate depends on various factors, such as - the type of property, location, and preference of the clients.
Broadly speaking, there are three types of appraisal methods in real estate, namely:
- Sales-based analysis: In this method, appraisers evaluate the current market prices of similar or comparable properties in the vicinity that have been sold in the last 12 months. This approach relies on at least comparable sales data for at least 3-5 properties.
- Income-based analysis: In this method, an appraiser can make use of a property’s historical net operating income and combine it with the return rate to come to a fair valuation. This approach keeps in consideration the present as well as the future revenue potential of a property.
- Cost-based analysis: In this approach, the appraisal of a property is based on the consideration of the cost required to build a new property on the same piece of land. This means an appraiser would calculate the costs by covering all the required materials, labor, and resources and prepare a value based on that estimate.