Independent Valuer in Real Estate Appraisals

 

Many homeowners who are thinking about the possibility of selling become confused when they investigate the different ways to evaluate what their home is worth.  The confusion stems from the differences between a Comparative Market Analysis (CMA) – which is typically prepared by a professional real estate agent – and a Real Estate Appraisal – which is typically prepared by an independent, professionally licensed Valuer.

A CMA is used to help set a sale price for a home and it involves finding three or more similar homes in the same location and using the prices for which they have sold as a guide for determining the sale price of the home for which the CMA was prepared.  While real estate agents are professionals and require licensing, they are not truly independent.  They make their commissions based on the actual selling price of the home listed with them so they have a vested interest in seeing the home sold as quickly as possible for as much as possible.

This leads to two pitfalls for a potential seller.  The first is where the real estate agent suggests an artificially low price to get the deal done as quickly as possible.  It takes time and effort from a real estate agent to sell a home and the faster the sale is completed the more time they have to devote to other properties.  The other pitfall is setting a sale price that is artificially high in the hope of getting a higher commission.

Potential sellers want to get as much as they can for their homes, but in an overinflated, “hot” real estate market it is possible to actually list a home too high.  How can that be?  Financial institutions that provide the mortgages needed to buy homes pay no attention at all to CMAs.  They are well aware of what can happen when housing bubbles begin to develop.  Instead, they rely on a formal Real Estate Appraisal, prepared by an independent Valuer.

These professionals are paid a flat fee for the appraisal they prepare and stand to gain nothing from the sale of the home.  Their only mission is to provide the lending institution with an accurate appraisal of the true value of the home.  Lending institutions use these appraisals in their loan decisions.  Simply put, they will not grant a loan in cases where the amount of the loan is more than the house is actually worth.

Although this sounds hard to believe, trust us; it happens in hot markets.  A real estate appraisal also uses comparative sale information but it is much more detailed, including information about the specific condition of the home and its location.  While sellers could hire independent Valuers to produce a real estate appraisal to help set their selling price, the service is not free; as is a CMA from a real estate agent.  A professional appraisal could cost as much as $600 and in many cases yields roughly similar results to the CMA.  Many homeowners feel secure working with a respected and experienced real estate agent rather than incurring the added cost of an independent appraisal.  The choice is yours.