3 Differences between an agent and an appraiser to consider when valuing your house for sale

3 Differences between an agent and an appraiser to consider when valuing your house for sale

appraisers provide prelisting appraisalsThat title is a mouthful, huh? I chose it in the hopes that it would convey the gist of the message I had in response to a recent article in the Huffington Post about the real estate market, agents, and appraisers. The author was discussing the health of the current real estate market and noted that some indicators are showing good signs while others don’t.

The consensus was that real estate is local, which I agree with, and you can’t take national news and surveys and apply them locally. The author suggested that if you want to sell your home you should not contact an appraiser. Here is the full statement he made:

Don’t call an appraiser, as their approach to market value is different than that of a real estate professional. The real estate agent is trying to get you a sold price near to the top of the market, and their CMA, Comparative Market Analysis, is going to give you a pretty good idea of its value.

I don’t think the author understands exactly what an appraiser does or their role in the real estate business For the benefit of the consumer I thought I would break his statement down and discuss differences between an agent and an appraiser to consider when valuing your house for sale.

Education

While it may have been an innocent choice of wording, his comment that the appraiser’s approach is different than that of a real estate professional infers that the appraiser himself is not a professional but the real estate agent is. When compared side by side the educational and experience requirement between an appraiser and agent in the state of Alabama (since that is the state I work in) break down like this:

Alabama real estate appraiser requirements

As you can see, there is both an educational and experience requirement for real estate appraisers. Those wanting to start appraising must first take some core classes and then work with a more experienced appraiser to obtain practical experience. Both the licensed and certified real property appraiser classifications must have a minimum of 2 years experience and 2,000  hours of work experience with the top level of residential certification adding another 500 hours of experience to attain that standing.

Pay

It’s important to know that both professionals are paid in two totally different ways. Most real estate agents work on a commission basis, meaning that their pay is calculated based on how much the house sells for. The higher the sales price, the more the commission and pay the agent receives. This makes sense in some respects because some homes which are higher priced may require additional time and marketing costs.

The appraiser is typically paid a flat fee for their appraisal services, based on the complexity of the job. An appraisal on a small 1,000 square foot cottage in a neighborhood with a lot of sales activity would be easier to complete than a 10,000 square foot custom built home in a rural area that has sparse sales activity. The appraiser must determine the appropriate scope of work necessary to complete an assignment and bid the job accordingly. The appraiser’s fee is not based on how much they appraise the house for.

Both the agent’s and the appraiser’s roles are very important to the real estate transaction, but it is important to keep in mind how each are paid. I am not suggesting that an agent may price a home higher to get a larger commission but it is a possibility with the way the payment structure is set up. There are agents and appraisers with varying levels of education and experience and it is important to pick those that can provide the best service.

Advocacy

Real estate agents are advocates for their client, the home seller. Their job is to sell the client’s home for the most they can, hence the author’s comment that “The real estate agent is trying to get you a sold price near to the top of the market”. This is a fine line to walk because if you asked a lot more for the house than what it is worth then it will never sell. It would be easy to see how inaccurate a list price is if a home is listed for twice what it is worth. What is not easy to see is when a home is listed for $10,000 more than what it is worth. What looks like a reasonable list price may indeed be too high and result in the home staying on the market for too long. An agent may just be going along with what the homeowner wants to get out of their  house so they don’t lose money, but that is not how you determine market value.

Appraisers are not advocates of either the seller, buyer, or the bank. My appraiser friend Gary Kristensen from the Portland, Oregon area recently wrote an article explaining the appraisers role in the real estate transaction. He noted that the appraiser is really an advocate of the public because it is his job to protect the public’s trust by complying with strict Uniform Standards of Professional Appraisal Practice (USPAP). Banks use an appraisal to make an informed loan decision, however the appraiser is not advocating for them. It is because of this neutral role that the appraiser plays that they are able to, and must, base their opinion of value on market data rather than the request of others.

Conclusion

Contrary to what the author said, you should call an appraiser if you want to sell your home. An appraiser can provide you with an opinion of value based on measurable market data by doing a pre-listing appraisal. This report will combine information relating to recent sales, current pending sales, and active listings to aid you in selling your home for an amount supported by the market and that will help you sell it in a reasonable amount of time.

Question

So what are your thoughts on the article? Do you agree with the author? If not, why? If you do, why? I’d like to get your take so leave a comment below. Thanks for reading.

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Comments

  1. Great one, Tom. As Gary said, seeing the educational requirements stacked up against each other like that was really illuminating. Thanks.

    • Thanks Michael. I was a bit surprised myself when I looked them up. I think this really proves to the public that the appraiser is a professional as well. I’m not sure if the author meant to infer that the appraiser was not but I hope he is careful in the future when writing about this subject.

  2. Thanks Tom. I enjoyed this one. I definitely agree with you that there is value in hiring an appraiser. Maybe the issue for the author is about spending money because if an expense was not required, we’d all agree an appraisal would be a great piece to the puzzle.
    Some thoughts after reading your post: The reality is a license does not make someone qualified to value something (or even good at value). For instance, there are many new real estate agents who have tremendous skill at selling, but valuing real estate is a far different game that simply takes years of experience to hone. I heard one broker say it takes an agent 5 years to begin to get it and an appraiser 10 years. I’m not sure his numbers are spot on, but there is something to be said about time in the industry to become competent. This doesn’t mean someone cannot be profoundly good or successful in the first year, but only that there is something about learning over time. The truth is even after many years, a person can still learn something new about how value works in a neighborhood or market (especially as the market changes and behaves differently over time). The cookie cutter properties in a subdivision are the easy ones for agents and appraisers, but it sure gets challenging when something is unique, which definitely provides room to see how an experienced appraiser would see the property.
    Ultimately someone’s ability to give a value to something is based on their training, experience, and developed skills over time rather than whether that person holds a license (true for agents and appraisers). The best thing a home owner can do is hire someone who has the ability to help shine a spotlight on value. Both agents and appraisers have something to bring to the table. On a practical note, an appraiser can do a full appraisal as he/she would do for a lender, but an appraiser can also act as a consultant to recommend repairs, give a limited appraisal with a range of value instead of one specific value, talk through what it is going to take for the property to meet minimum appraisal standards for a loan, or even help paint a visual picture of the market by making graphs of neighborhood sales (this can be a very convincing and powerful way to see value for an owner).

    • Great observations Ryan. I think the bottom line is to find the most experienced professional to help you, whether you use an agent or an appraiser to come up with a list price. Both have a lot to offer if they have the education and experience. It is each professional’s task to find out how they can add value to the seller, whether that be through doing a pre-listing appraisal or acting as a consultant as you describe. Thanks for your take on the subject.

  3. Tom Molinari says

    Thank you Tom. Another informative post. To add to your conversation on education and experience; you gave the bare minimums required by law to become an appraiser. Some appraisers, such as yourself, go well beyond the minimum requirements to get a designation from the Appraisal Instituta, Amarican Society of Appraisers, or the ASFMRA to better serve the public. Designations from those organizations require hundreds of more hours of education and experience in valuation. Real Estate agents are there to sell homes and they do a fine job at that. Appraisers value homes and much of the public don’t understand our role in the real estate world.

    Another way to look at the issue is if agents had the same degree of expertise at valuing homes, they would be hired by banks, attorneys, financial planners, and accountants for valuation purposes day in and day out. But they are not. Those professsionals rely on appraisers when they need to value a piece of property.

    • You’re right Tom, I only gave the bare minimums. Professional appraisal organizations do require more than that to obtain designations. Both the agent and appraiser provide value in different ways. The whole point of this article was to point out the error in the author’s statement regarding his misunderstanding of the process and each player’s role.

  4. I agree! Even if you find someone willing to pay the too high price, if the buyer is getting a mortgage, the home must appraise.

    • Exactly true Mark. The only time there would be no problem would be if the buyer is paying cash. If that buyer then needed to sell in a couple of months because of a job transfer or something else it would be highly unlikely that they would sell for what they paid.

  5. Interesting article Tom. I’ve never seen the education and experience requirements of a real estate agent and an appraiser put side-by-side like that. It would be interesting to see the average income and liability put side-by-side as well. I’m betting, but I don’t know, that full time appraisers make less money than full time agents. The more difficult requirements without additional pay could be why few people are becoming appraisers. Also, I’ve heard that appraisers have more claims or higher claims against their insurance per house than an agent. So the appraiser gets a $400 fee and has higher liability than an agent who gets a $5,000 commission. Future blog post for you, me, or just some fun research???? 🙂

    • All great questions Gary! I think that anyone getting into the appraisal profession now would do well to concentrate in the area on non lender work if possible. It is certainly not a profession where you can “get rich quick” but one that affords decent pay and flexibility with your schedule.

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