Money Sense

The Role of the Appraiser in the Mortgage Process
Lenders often will use an appraiser to determine the market value for a property. It is critical for a lender to confirm a property's value on which a loan is based. The appraiser will then prepare a written report called an appraisal, which takes into account the home's condition and the selling prices of comparable properties. The appraiser is an independent third party, who has no vested interest in the transaction and is paid a flat fee for his or her services. Considering the many factors that affect the value of a property, an appraiser makes an important contribution to the transaction.

Fannie Mae, a federally chartered corporation that buys home mortgages on the secondary market, describes the role of the appraiser as providing the lender with:
  • An accurate, adequately supported opinion of value, and/or
  • A complete, accurate description of the property
Fannie Mae also describes the role of the lender is to:
  • Review the appraisal to ensure it is of professional quality, and prepared in a way that is consistent with written standards and methods published by the appraisal industry and/or Fannie Mae
  • Analyze the property based on the appraisal
  • Judge the property's acceptability as security for the mortgage requested in view of its value and marketability

Appraisers follow written standards and methods to estimate value. The appraiser begins with an interior and exterior inspection of the property. The purpose of the inspection is gather basic information about the property, which the appraiser will use to compare the property against other properties. This inspection is similar to what a potential homebuyer would perform before submitting an offer to purchase a home. The appraiser will make certain assumptions that components such as framing and insulation are in working order, and were built to community standards typical for the time when the home was constructed.

Appraisers are not home or building inspectors, and do not comment on the structural integrity or correct operation of plumbing, air-conditioning, electrical, or other items in the home. A building inspector is needed to evaluate these and other conditions of the home. Together, an appraisal and inspection provide an accurate assessment of the property's current market value.

The question is sometimes asked as to how an appraisal differs from a market value estimate provided by a Realtor. Essentially, a Realtor's market value estimate is more general in scope and method. A Realtor's estimate is typically based on current asking prices for similar properties, or a combination of asking and recent sold prices, while an appraiser's report must be based on actual sold prices only. Also, an appraiser is required to use specific guidelines determined by Fannie Mae when evaluating a property.

The information on this page is for educational purposes only. SCCU is not engaged in providing estate planning or other advice. Please consult with a competent estate planning professional regarding any specific estate planning questions.