Do Real Estate Agents Do Appraisals?


Home buyers who are looking to save some money often ask me if real estate agents do appraisals. After all, agents advise sellers about how much their house is worth, so real estate agents do appraisals, right?

Real estate agents can give a buyer an informed opinion about the appropriate price to pay for a home. They can also advise sellers about a suitable listing price. However, they cannot provide an official appraised value of the kind required by a lender during the mortgage application process.

The majority of misunderstandings around real estate agents and appraisals arise because homeowners and house hunters do not always understand the difference between appraised value, market value, and listing price.

And this is just the tip of the iceberg

Do Real Estate Agents Do Appraisals?

In the realm of real estate, when we talk about appraisals, we’re usually referring to the appraisal carried out by a qualified professional, at the direction of the lender. This is when the appraiser visits a home on which the buyer has submitted an offer. The result of this visit is a report which includes, among other things the Appraised Value. This is the value used by lenders when deciding a mortgage application.

The confusion happens when the terms appraisal or appraised are used more loosely. For example, when a real estate agent visits a potential seller and provides an estimated market value, some people refer to this as an appraisal.

In the general sense of the word, this is correct. The definition of appraisal is:

  • The act of estimating or judging the nature or value of something or someone.
  • An estimate of value, as for sale, assessment, or taxation; valuation.
  • An estimate or considered opinion of the nature, quality, importance, etc.:

So a real estate agent who visits a house and gives their considered, professional opinion about a market value meets this definition.

But it’s not that simple

In the general sense of the word, what I am doing here, on this blog, is sharing knowledge, which in turn can be defined as teaching. However, when we think of teaching, we imagine a person who has taken specific education, passed exams, been licensed, and works in a school, college, or somewhere similar.

The same principle is at work here, and I’ll explain why.

How Does A Real Estate Agent Value Your Property?

When a real estate agent tells you their opinion of the market value of your home and gives a suggested listing price, they do not pluck this figure out of thin air. As long as you take the time to interview potential agents, you’ll have someone who is knowledgeable about the local market and has experience buying and selling in your neighborhood. This, along with their professional training gives an agent the expertise they need to come up with a considered, informed opinion.

To arrive at the estimated market value, a good real estate agent will:

  1. Review comparable properties in your area and consider recent sales prices, as well as current listing prices.
  2. Ask the homeowner about their knowledge of positive and negative aspects of the property.
  3. Research background information which could affect property value.
  4. Take one, or a number of, walkthroughs of the property noting the basics such as the number of rooms and the room sizes, as well as the homes best cosmetic features such as hardwood flooring or his and hers walk-in closets.

At this stage, the agent will then consider your needs and how much above or below the estimated market value the house should be marketed at, in order to meet those needs.

The agent will then use all of this information, as well as their professional experience, to give their informed opinion about a suitable listing price. This may be more or less than the estimated market value.

How Does An Appraiser Value Your Property?

An appraiser carries out their assessment of a property in a similar way, but there are distinct differences.

To arrive at an appraised value, a good appraiser will:

  1. Review comparable properties in your area and consider recent sales prices, as well as current listing prices.
  2. NOT ask the homeowner about their knowledge of positive and negative aspects of the property.
  3. Research background information which could affect property value.
  4. Make a single walkthrough of the property noting the basics such as the number of rooms and the room sizes. An appraiser WILL NOT consider the homes cosmetic features such as hardwood flooring or his and hers walk-in closets.

The appraiser then records this information on the same standard appraisal form used by 99% of the countries appraisal professionals. They will then give their considered professional opinion of the appraised value of the property.

The form, along with a hand-drawn floor plan, a photograph of the front of the appraisal property, and a photograph of the front of each of the comparable properties are submitted to the lender as evidence.

What About Market Value?

This value is set when a home is sold and is the price paid for a property. One a buyers and seller agree on a price, that amount is the value which the market, i.e., the people buying and selling, have decided the house is worth to them. This is the market value.

Why Can’t The Lender Use The Agents Price?

After explaining this, I am often asked why the lender can’t just accept the real estate agents price. After all, agents are professionals who must take training, and exams, and apply for a license to do their job, just like an appraiser.

There are a few reasons why the lender doesn’t use the agent’s price:

A Conflict Of Interest

Real estate agents are duty bound to do the best they can for their client. When representing a seller, this involves closing the best deal possible. The “best” deal can be different things for different sellers, but in the majority of cases, this means, among other things, the highest price. So a sellers agent would assign the highest price possible and sellers looking for an agent would sign with the person who gave them the highest value.

To act in a buyer’s best interest a real estate agent would need to ensure the house value was as low as possible.

Meanwhile, the lender wants to know how much they can reasonably expect to sell the property for if the borrower defaults on their mortgage. This the lender cannot do if they have a range of value from different realtors.

As a consequence, you would end up with a situation where there are a number of subjective values which would be set, not according to the “true” value of the property but in the best interest of each party involved.

The Elements Of Assessment

An appraiser looks only at the basics such as the number of rooms, square footage, etc. These, generally cannot be argued with. Meanwhile, a real estate agent considers the basics PLUS other elements which introduces variability to a price.

Homeowners and house-hunters across the country have different tastes, and these tastes change over time in response to what is currently considered to be stylish and fashionable. Using a 100 square foot kitchen as an example, an appraiser is going to assign this room the same value as a 100 square foot kitchen, of similar repair in all other houses in a neighborhood no matter how it looks with regard to style

A real estate agent, on the other hand, will assign different values to the same room depending on whether it is:

  • Newly installed and on point with the latest in home design
  • A “study in 1970’s chic.”
  • A few years old, but still “nice enough” to live with
  • Brand new but painted purple and orange, with a green and white checked floor and hardly any work surface.

Comparing Apples To Oranges

If you were to ask 20 real estate agents, all of whom were active an experienced in the local market,  to provide you with a listing and guide price for a property, you’d get 20 different submissions. The listings might be very similar, but they would still differ in the language used for descriptions, which elements of the property are downplayed or left out, the number of photographs, the features highlighted.

This creates a situation where, if you were to give those 20 listings to a third party, who had no idea about the local neighborhood, or real estate market, that person would have no idea which listing was the most accurate, and which listing price was most suitable. They would be comparing apples to oranges.

On the other hand, appraisers use a standard appraisal form, no matter where they are in the country and must take the exact same steps when carrying out each of their appraisals. So, in theory, you could ask 20 appraisers to report on the home, and, as long as they were active and experienced in the local market, the same issues would be highlighted and the value of the house would be very similar for each.

This makes it easier for a third party, in this case, a lender, to review an Appraisal Report and know that it is objective, has covered all of the bases, and is directly comparable to reports of other properties in the area because they would be comparing apples to apples.

The only time an appraisal can be avoided is if you do not need a loan because you are buying with cash.

The Bottom Line

A real estate agent can give you an accurate estimate of the market value and a suitable listing price for a home. They do this by visiting your property and using their skills, experience, and local knowledge to produce an informed opinion. This value is based on basic, objective elements such as the number of rooms, as well as subjective features which vary from property to property like the quality of the light fixtures.

However, real estate agents cannot carry-out an appraisal of the kind that a mortgage lender requires to assess a loan application. This Appraised Value must be established by a specially trained professional who is independent of the sale and takes only objective elements of a property into account. 

About The Author

Geoff Southworth is the creator of RealEstateInfoGuide.com, the site that helps new homeowners, investors, and homeowners-to-be successfully navigate the complex world of property ownership. Geoff is a real estate investor of 8 years has had experience as a manager of a debt-free, private real estate equity fund, as well as a Registered Nurse in Emergency Trauma and Cardiac Cath Lab Care. As a result, he has developed a unique “people first, business second” approach to real estate.

Check out the Full Author Biography here.

 

This article has been reviewed by our editorial board and has been approved for publication in accordance with our editorial policy.

Geoff

Geoff Southworth is the creator of RealEstateInfoGuide.com, the site that helps new homeowners, investors, and homeowners-to-be successfully navigate the complex world of property ownership. Geoff is a real estate investor of 8 years has had experience as a manager of a debt-free, private real estate equity fund, as well as a Registered Nurse in Emergency Trauma and Cardiac Cath Lab Care. As a result, he has developed a unique “people first, business second” approach to real estate.

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