External Appraisal or Valuation

January 1, 1 6 min read External Appraisal Independent Valuation Third-Party Appraiser Market Value Property Valuation Real Estate Appraisal Regulatory Compliance
An external appraisal, also known as an independent valuation, is conducted by an impartial third-party appraiser to determine the market value of a property, ensuring objectivity and compliance with regulatory standards.
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External Appraisal or Valuation

Definition

External Appraisal or Valuation refers to the process where an independent fee appraiser, not associated with the owner or interested parties, assesses the market value of a property. This is usually required by lenders and regulatory bodies to ensure that the property’s valuation remains impartial and reflects true market conditions.

Examples

  1. Bank Loan Approval: A bank seeks an external appraisal from an independent appraiser through an appraisal management company (AMC) to determine the value of a commercial property that a business intends to purchase using a loan.
  2. Real Estate Sale: A homeowner selling their property may request an external appraisal to obtain an unbiased valuation to set a competitive listing price.
  3. Insurance Coverage: An insurance company may require an external appraisal to assess the value of a property for underwriting purposes.

Frequently Asked Questions

1. Why is an external appraisal necessary?

An external appraisal is necessary to ensure a fair, unbiased, and accurate valuation of the property. It provides transparency and credibility, especially in transactions involving financing or legal settlements.

2. How is an independent fee appraiser selected?

Independent fee appraisers are often selected through an Appraisal Management Company (AMC), which maintains a roster of qualified and certified appraisers. Lenders and regulators typically mandate this process to prevent conflicts of interest.

3. What qualifications should an independent fee appraiser have?

An independent fee appraiser should have relevant certification or licensure from state or national regulatory agencies, extensive experience in property valuation, and a reputation for impartiality and accuracy in their assessments.

  1. Appraisal Management Company (AMC): A firm that acts as an intermediary between a lender and an appraiser, ensuring the independence and integrity of the valuation process.
  2. Market Value: The estimated amount for which a property would exchange on the date of valuation between a willing buyer and a willing seller.
  3. Valuation Date: The specific point in time for which the value of a property is calculated by an appraiser.
  4. Fair Market Value: The price that a property would sell for on the open market under normal conditions.

Online Resources

References

  1. Appraisal Institute. (2021). The Appraisal of Real Estate (15th Edition). Chicago, IL: Appraisal Institute.
  2. Kinnard, W.N., Jr. (1999). Income Property Appraisal and Analysis. Prentice Hall.
  3. The Appraisal Foundation. (2020). Uniform Standards of Professional Appraisal Practice. The Appraisal Foundation.

Suggested Books for Further Studies

  1. Real Estate Appraisal: From Value to Worth by N. Crosby and P. Henneberry
  2. Fundamentals of Real Estate Appraisal by W.L. Ventolo Jr. and M.S. Williams
  3. Mastering Real Estate Appraisal by D.L. West and W.D. Rabiega

Real Estate Basics: External Appraisal or Valuation Fundamentals Quiz

### What is the primary reason lenders request an external appraisal? - [ ] To increase loan interest rates. - [ ] To streamline the application process. - [ ] To incentivize borrowers. - [x] To ensure an unbiased and accurate property valuation. > **Explanation:** Lenders request an external appraisal to ensure that the property valuation is unbiased and accurate, reducing the risk associated with the loan. ### Who often facilitates the selection of an independent fee appraiser? - [ ] The property owner - [ ] The borrowing institution's internal team - [x] An Appraisal Management Company (AMC) - [ ] The real estate agent > **Explanation:** An Appraisal Management Company (AMC) typically facilitates the selection of an independent fee appraiser to ensure compliance with regulatory requirements and maintain the impartiality of the appraisal process. ### What does an external appraisal assess? - [x] Market value of the property - [ ] Future value of the property - [ ] Property tax rates - [ ] Owner's equity > **Explanation:** An external appraisal assesses the market value of the property, reflecting current market conditions and ensuring a fair valuation for all parties involved. ### When might an insurance company require an external appraisal? - [ ] To determine mortgage eligibility - [ ] To calculate rental income - [x] To assess property value for underwriting - [ ] To establish monthly premiums > **Explanation:** An insurance company might require an external appraisal to assess the value of the property accurately for underwriting purposes, as it helps determine the necessary coverage amounts. ### What key characteristic must an independent fee appraiser have? - [ ] Affiliation with interested parties - [x] Impartiality - [ ] Association with the property owner - [ ] Previous work with the same lender > **Explanation:** An independent fee appraiser must be impartial to provide an unbiased value of the property, ensuring the appraisal's credibility and compliance with regulations. ### Which entity sets standards for real estate appraisals? - [ ] Homeowners' Associations - [ ] Local Banks - [x] Uniform Standards of Professional Appraisal Practice (USPAP) - [ ] Real Estate Agents > **Explanation:** The Uniform Standards of Professional Appraisal Practice (USPAP) sets the standards and rules that govern real estate appraisals, ensuring ethical and professional practices. ### For what purpose can property owners use external appraisals during sales? - [x] To establish a competitive listing price - [ ] To refinance a mortgage - [ ] To apply for insurance - [ ] To assess tax liabilities > **Explanation:** Property owners can use external appraisals to establish a competitive listing price based on an unbiased market valuation, helping attract potential buyers. ### What does AMC stand for in the context of property appraisal? - [ ] Appraiser Management Council - [ ] Appraisers' Marketing Cooperative - [x] Appraisal Management Company - [ ] Accelerated Mortgage Corporation > **Explanation:** AMC stands for Appraisal Management Company, which acts as an intermediary between lenders and appraisers to ensure the independence and integrity of the appraisal process. ### Can a property's market value determined by an external appraisal influence loan terms? - [x] Yes - [ ] No - [ ] It depends on the loan amount - [ ] It only influences interest rates > **Explanation:** Yes, a property's market value determined by an external appraisal can influence loan terms, such as the loan amount, interest rates, and loan-to-value ratio, ensuring proper risk assessment. ### What date is important in the context of an external appraisal? - [ ] Loan approval date - [ ] Property listing date - [x] Valuation date - [ ] Insurance renewal date > **Explanation:** The valuation date is important as it specifies the point in time for which the appraised value of the property is calculated, reflecting market conditions on that specific date.
Sunday, August 4, 2024
External Obsolescence
Extension
Appraisal Approach January 1, 1
Appraisal Process January 1, 1
Appraisal Report January 1, 1
As-Is Value January 1, 1
Cost Approach January 1, 1
Depreciation (Appraisal) January 1, 1
Fee Appraiser January 1, 1
Fee Simple Value January 1, 1
Final Value Estimate January 1, 1
Incurable Depreciation or Obsolescence January 1, 1

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