Years ago, Lorrie Beaumont knocked on a door in Westwood, where she owns LB Appraisal Associates, for what she thought was a routine appraisal.
“The owners actually let me in to do a full inspection of the property, not questioning a thing,” Beaumont said. “But the address from the lender was incorrect, and I appraised the wrong property.”
While that experience was extremely unusual, appraisers say many homeowners, buyers, and sellers share a lack of understanding about appraisals.
“The biggest misconception sellers and even buyers have is that they don’t realize we’re working for the bank,” said Michael C. Nicora, owner of Suburban Appraisal Co. in Agawam. “Our job is to protect the lender’s interest in the property they’re financing. Buyers and sometimes sellers ask us for copies of the appraisal, but they have to get that from the bank.”
Lenders are required to provide a copy of the appraisal to buyers after the report is completed and at least three days before the closing, according to the Consumer Financial Protection Bureau. While buyers pay for the appraisal upfront or sometimes at the closing, which typically costs roughly $375 to $500, the lender is the appraiser’s client, Nicora said.
Understanding the appraisal process
Any appraisal, whether it is for a purchase loan or a refinance, is meant to be an informed estimate of the market value of a property. Some buyers think an appraisal is the same as a home inspection, but a home inspection is a report for the buyer about the property’s condition and does not provide a home value.
“Ninety-nine percent of appraisals are done for financing,” Nicora said. “Cash buyers don’t need an appraisal, although they sometimes pay to have one for their own peace of mind.”
Sellers occasionally hire an appraiser to help them determine a listing price for their property.
“When there’s a purchase transaction, we’re provided with a copy of the purchase and sale agreement, and our job is to see if it passes the sniff test,” said Danyl Collings, managing partner of Four Core Properties in Canton. “We’re there to verify that the purchase price is supportable or not.”
For a refinance, the appraisal is based on the best two or three comparable homes, said Collings, since a purchase offer is not part of the transaction.
“Buyers and homeowners sometimes don’t understand the bracketing that we do to come up with a value,” Collings said. “We find a home that’s smaller and a home that’s larger and hopefully some with the same lot size and condition. The appraised value is like the peanut butter and jelly between the bread of the high and low end of values in the neighborhood.”
While appraisals are not an exact science, if several are done on the same property at the same time, they should come to a similar conclusion about the value, said Richard Goulet, president of The Appraisers Group in Belmont.
“We look at the neighborhood, at market conditions, and compare several similar properties that recently sold,” said Goulet. “Then we make a judgment on the property and make adjustments based on how it compares with those other properties.”
The basic elements of the comparison include the number of bedrooms and bathrooms, the size of the property, the location, the quality of construction, and the condition of the home, said Goulet.
“A lot of buyers and sellers don’t understand the analysis that goes into the value opinion of a property,” Beaumont said. “It’s not a broker’s price opinion. Our value conclusions require a more detailed analysis of the past, present, and sometimes the future of market conditions.”
While upgraded kitchens and bathrooms and above-grade home improvements can add value to a property, basement space is rated differently, Collings said.
“If a house has 3,000 square feet aboveground and a 3,000-square-foot basement, it’s still a 3,000-square-foot house with a basement, not a 6,000-square-foot house,” Collings said. “That’s not our choice, that’s the definition established by Fannie Mae and Freddie Mac."
Licensed appraisers must support their evaluation with evidence and explain how they came to specific conclusions, Beaumont said.
“Appraisers need to know the neighborhood so they can understand the value buyers place on being in a specific school district or with access to a train or other commercial development,” Collings said.
Appraisers don’t make a judgment on a neighborhood, but they need to make sure they’re comparing homes in similar areas with similar amenities, Nicora said.
“Jurisdictional competency is crucial to an accurate appraisal,” Goulet said. “It doesn’t happen often, but occasionally appraisers accept jobs in places they’re not familiar with and that can cause them to make a mistake.”
Appraisals and ethics
Appraisers in Massachusetts must be licensed. You can check on an appraiser’s license with the state.
“I wish buyers would understand that our license and ethical obligations require us to report what we see in a home,” Beaumont said. “If we see a violation, we’re ethically obligated to report it.”
Among the violations appraisers find, said Beaumont, are the lack of permitting for a finished area, an illegal in-law suite in the basement or attic, or an illegal stove in the basement.
“Buyers might be surprised to know the level of scrutiny we receive, with every report read by Fannie Mae and Freddie Mac,” Collings said. “About ten to fifteen percent of reports are peer reviewed, too, for quality control.”
Bidding wars and appraisals
One issue that may complicate appraisals is the prevalence of bidding wars.
“Brokers encourage their sellers to list a property worth $800,000 at $759,000 to spark a bidding war,” Goulet said. “Since around 2012, about 45 percent of sales have gone above the asking price.”
More appraisals come in at the offer price today than in the past, Goulet added. “When you have competing offers for an amount above the listing price, that’s the definition of market value for a property.”
If an appraisal comes in lower than the offer price, buyers will need to put in more cash or renegotiate the deal, depending on their contract, Collings said.
How agents and homeowners can assist appraisers
While sellers and agents bake cookies and place out fresh flowers to impress buyers, those tactics don’t influence appraisers, Nicora said.
“Sometimes people tell us the number they need for the value, but we can’t be influenced by that,” Nicora said. “We have to be unbiased.”
Nicora said sales agents, and sometimes homeowners, typically attend the appraisal, which can be helpful.
“I’m happy to get information from the broker or the homeowner such as a list of improvements to the property, because that helps me do my job,” he said.
Brokers can show appraisers the comparable homes they used to suggest a listing price to their clients, but appraisers also will find their own comparable homes to evaluate.
“If there’s a similar home that sold for much more or much less than the property I’m appraising, I’ll call the agent for that house to find out why,” Collings said. “We need to do some digging, especially if there was an estate sale or a foreclosure.”
What to do when the appraisal seems wrong
Banks typically have a policy for borrowers who are not happy with the results of an appraisal, Goulet said.
“The buyers and their agent can request a reconsideration of the value with reasons why they think the appraisal is wrong, such as examples of comparable homes or a mistake in the number of bedrooms,” Goulet said.
Appraisals are often — but not always — reconsidered, Goulet said.
“People need to understand that we’re an independent third party,” Collings said. “We’re just here to tell the bank whether the value of the property is there or not before they approve a loan.”
Michele Lerner can be reached at MVLerner@comcast.net. Subscribe to the Globe’s free real estate newsletter — our weekly digest on buying, selling, and design — at pages.email.bostonglobe.com/AddressSignUp. Follow us on Facebook, Instagram, and Twitter @globehomes.