Appraisals: What is An Appraisal?

Happy September! We hope everyone is adjusting well to the changes at work, back-to-school, and other aspects of our lives. The Orlando real estate market continues at a brisk pace. Orlando now has only 6,220 homes available for purchase, down 22.2% compared to July of 2019!  This is the lowest level of inventory in recent memory.

We welcome all your real estate questions.  Many of you have asked us about real estate appraisals.  We will use the next couple of months to discuss this broad topic.


Most people encounter a real estate appraisal in 3 situations:  (1) when buying or selling a home using a mortgage loan,  (2) when refinancing a mortgage, or (3) when a seller wants help with determining the asking price of their home.

 First, what is a real estate appraisal?  A real estate appraisal is a report done by a licensed appraiser showing what a property is worth. Banks then use this report to determine how much money they are willing to lend on a home.  Most people believe an appraisal to be an objective determination of value, but we think it is more accurate to think of it as a subjective opinion of value.  That means a home’s value is not a set absolute. 3 different appraisers would likely come up with 3 different values for the same home, especially if the home is “unique.”  A licensed appraiser’s opinion of value is called an appraisal, while the opinion of a real estate agent is called a CMA (Comparative Market Analysis) or a BPO (Broker’s Pricing Opinion).  The important thing to note is that they are all opinions.

 A licensed appraiser is a trained professional in rendering the opinion of a property’s value.  The purpose of this opinion is to help banks make risk assessment in mortgage loan decisions.  It is important to understand this: an appraiser’s true customer is the lender financing the purchase, not the buyer or seller.  The bank wants to know if a property is worth at least the sale price.  Yes, the appraiser does get a copy of the contract and knows the sale price ahead of time.  He is not being asked to make a blind appraisal.  If the appraiser agrees with the given sale price, the bank will accept the property as the collateral for the loan.  The bank does not care if the home is worth more, but it must not be worth less.  Many people ask us if the appraisal only has to match the loan amount.  Actually, if a bank is lending 80% of value and requiring the buyer to put down 20%, the collateral must meet the 100%, not just the 80%, hence the appraisal value must be at least the full sale price.

As mentioned above, an appraisal is a “subjective opinion of value.”  We see the reality of that all the time.  We’ve seen different appraisals on the same house come back at significantly different values and we’ve reviewed many of the appraisals over the thousands of transactions we’ve been a part of.  Most of them are good appraisals, but many can be less so.  We have good relationships with many appraisers.  They contact us routinely to seek additional information on our sales to be used as comps in their reports.  We respect the work of professional appraisers, but we also distinctively see the difference in what they do vs. what we do as real estate agents.   Our opinions of value can converge or diverge.

 Next month, we will discuss this convergence and divergence.

Until then, take care!  See you next month!



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