Who Is Responsible for Ordering an Appraisal?

An appraisal provides an unbiased, professional opinion of a property’s value at a specific point in time. This valuation is conducted by a licensed or certified appraiser who adheres to established valuation standards and ethical guidelines. The primary purpose of an appraisal is to determine a fair market value, which represents the most probable price a property should bring in a competitive and open market under all conditions requisite to a fair sale. This impartial evaluation helps ensure transparency and accuracy in various financial and legal contexts.

Ordering Appraisals in Real Estate Transactions

In most residential real estate transactions involving a mortgage, the lender is the primary party responsible for ordering the appraisal. Lenders require an appraisal to protect their investment by verifying that the property’s value supports the loan amount. While the lender selects the appraiser, often through an Appraisal Management Company (AMC) to ensure impartiality, the borrower pays for the appraisal as part of their closing costs, with fees generally ranging from $350 to $650.

Buyers may independently order an appraisal, especially when making an all-cash offer where no lender-required valuation exists. This allows cash buyers to gain assurance that they are paying a fair price for the property. A buyer might also seek a pre-offer appraisal to help determine a competitive price in a fast-moving market or to obtain a second opinion on value.

Sellers sometimes choose to order a pre-listing appraisal before placing their home on the market. This can provide a professional, unbiased valuation to help set an accurate listing price, potentially avoiding overpricing that leads to extended market time or underpricing that leaves money on the table. A pre-listing appraisal can also help address potential buyer appraisal issues upfront or provide a reliable valuation for estate sales.

While real estate agents are central to property transactions, they do not directly order appraisals for lending purposes due to regulations ensuring appraiser independence. Instead, agents facilitate the process by assisting with scheduling and providing relevant property information, such as details on recent improvements or comparable sales, to the appraiser. They play a supportive role in guiding clients through the appraisal stage of a transaction.

Ordering Appraisals for Legal and Financial Needs

Appraisals are ordered to establish property values for various legal and financial requirements. In divorce proceedings, attorneys advise their clients, or courts may mandate, an appraisal to determine the equitable division of marital assets, ensuring a fair settlement for both parties. This valuation provides an objective basis for property distribution.

For estate settlement, executors or estate attorneys order appraisals to establish the fair market value of inherited property as of the decedent’s date of death. This valuation is crucial for probate purposes, determining potential estate tax liabilities, and facilitating the proper distribution of assets among heirs. Individuals making significant property gifts may order an appraisal to ascertain the fair market value for gift tax reporting requirements to the Internal Revenue Service.

In bankruptcy cases, either the individual filing for bankruptcy or a court-appointed trustee may order an appraisal. This helps to accurately value real estate assets, which is necessary for debt restructuring plans or for the liquidation process to satisfy creditors. Appraisals ensure that assets are valued correctly within the bankruptcy estate.

Financial advisors or individuals establishing trusts order appraisals to determine the current value of assets being placed into the trust. This provides a clear baseline for financial planning, asset management, and future tax considerations.

Ordering Appraisals for Property Assessment and Insurance

Homeowners order independent appraisals when they intend to dispute their property tax assessment. An appraisal provides professional evidence to present to the local tax assessor’s office, supporting an argument for a lower assessed value and potentially reducing property tax obligations.

Insurance companies order appraisals to assess the extent of property damage following a claim, determining the appropriate payout for repairs or replacement. Conversely, homeowners might order their own appraisal to substantiate a claim, particularly if they believe the insurer’s offer is insufficient, providing an expert opinion to support their negotiation.

Borrowers seeking to remove Private Mortgage Insurance (PMI) order an appraisal to demonstrate sufficient equity in their home. If the property’s value has increased significantly since the original purchase, an updated appraisal can show that the loan-to-value ratio has fallen below the threshold requiring PMI, leading to its cancellation and reducing monthly mortgage payments.

Government agencies utilize appraisals for various public purposes, such as eminent domain proceedings. In these situations, the government orders an appraisal to determine fair compensation for privately owned land acquired for public use, ensuring property owners receive just value as required by law.