The Scoop Real estate appraisal firms provide unbiased third party estimates of a property's most probable sales price (appraisal). Appraisals are typically performed for property sale, purchase or when an owner refinances. They're also used for tax appeals, bankruptcy, dispute resolution and monitoring the value of a real estate portfolio. Appraisers usually work for full-service real estate companies, banks or for appraisal firms. Full-service real estate firms like CB Richard Ellis (www.cbre.com) and Cushman and Wakefield (www.cushwake.com) have valuation departments. Bank One and Wells Fargo have appraisers on staff and there are specialty groups with larger appraisal firms like American Appraisal Associates. There are also a number of boutique appraisal firms in local markets, which care listed on the Appraisal Foundation's web site at www.appraisalfoundation.org.
Once the buyer and seller of the property agree on the price, the lender requires an appraisal prior to closing to justify the price that the buyer, its debtor, agreed to pay. Appraisals provide an objective third party opinion on the value of the asset(s) underlying the proposed transaction to the creditors, which finance the asset. The creditor usually agrees to lend the buyer the lesser of a certain percentage of either the appraised amount or the negotiated purchase price. If the appraisal of the property is well below the negotiated price, the creditor can back out of the deal or change the financing structure.
Appraising the property prior to closing is mutually beneficial for the creditor and the debtor because it is a validation to the creditor that the asset has value and it prevents the buyer from overpaying. Moreover, it prevents the proliferation of owners who owe more on the property than the asset is actually worth, which could lead to a collapse in market values, thus protecting the market. To perform a real estate appraisal in the U.S., you must be a licensed professional. Each state has its own real property appraiser regulatory program, which you must complete to become a licensed professional. Becoming a licensed professional in this field is a lot like becoming a real estate salesperson, you must complete several hours of education, pass a state exam and provide proof of relevant work experience.
One thing to point out is that you don't need a college education to become licensed. In Illinois there are three license levels: associate real estate appraiser, certified residential appraiser and certified general appraiser, and the fee for each exam is $62. To obtain an associate license you need to complete 75 classroom hours, for a certified residential you need 120 hours and 2,500 hours of practical work experience, and for a certified general you need 180 hours and 3,000 hours of practical experience.
You can find information on getting a license, taking the exam or where you can go for the required classroom instruction on your state's homepage. At the end of classroom instruction you have to pass an test before you're eligible to take the state license exam. An associate can't sign appraisal reports. Certified residential and general appraisers can sign off on appraisal reports but only a general appraiser can work on residential and commercial assignments. Bear in mind that obtaining the more advanced licenses and designations can be expensive. In Illinois, an associate can expect to pay $1,000 and up for other licenses and designations beyond. For more information about state specific licensing requirements, you can contact the Appraisal Institute at (312) 335-4100 or visit their web site at www.appraisalinstitute.org. Remember that they don't issue licenses, just certifications and general information.
Many banks and real estate owners insist that the appraisers they work with not only be licensed but must also designated professionals. Becoming a designated professional is harder than becoming a licensed professional, as it's time consuming, can be difficult and does require a college education. There are different designated organizations with varying criteria. The Appraisal Institute is one of the more respected licensing and designation organizations and issues the MAI and SRA designations. An MAI designation is for appraisers of residential, industrial and commercial properties, whereas SRA is for appraising residential real estate only. To receive your MAI designation you must:
- Hold a college degree.
- Complete 380 classroom hours.
- Pass 11 instructional exams.
- Tally 6,000 hours of work experience.
- Participate in peer counseling.
- Write a demonstration report.
- Pass a comprehensive two-day exam.
The criteria for the SRA are:
- Hold a college degree.
- Complete 181 classroom hours.
- Pass 7 instructional exams.
- Tally 4,500 hours of work experience.
- Write a demonstration report.
You'll be in higher demand and therefore command higher fees with MAI and SRA designations. You'll also be held in high regard among your peers.
On the Job This real estate career path is less cyclical than other real estate careers because appraisals are needed in both up and down markets. For example, even when the real estate industry is slow many owners tend to refinance -- assuming interest rates are low -- or audit their portfolio, which requires an appraisal of the existing asset. But this is also a very paper-intensive business. Clients expect detailed reports and the reports may appear to be monotonous.
Appraisal is a trade specific field so there is a plethora of information and on-the-job training at the outset. The typical entry-level position involves a market research role. New hires are responsible for gathering market information for senior appraisers and help write reports that explain conclusions to the client. In this role you spend a good deal of time writing reports and doing research via the Internet and proprietary databases that house market information relevant to the valuation of the property in question. A normal week is between 40-50 hours, but can go up to 60 hours when it's busy.
Once you become more experienced you'll be expected to get an appraisal certification and will eventually be responsible for procuring new business. An appraiser interacts directly with the client, works with the market research associate to gather market comparables and local and general economic market conditions, does site inspections (which may translate into extensive travel), performs the valuation analysis and is responsible for the written report that presents the conclusions to the client.
As an appraiser you'll learn a great deal of how the market values property as well as the concerns of the capital markets when investing in real estate. If you like real estate and finance, this is a great career to marry your two interests.
Typically, a lending institution would direct you to value a property or portfolio of properties for which they have or will issue debt. Once the research and the analysis necessary for the appraisal are complete this information will be put into a written report and submitted to the client. The report often has a summary of the local or regional economy and may include demographic information. The following is an example of the DCF method in practice.
Visit Vault.com for more jobs and career articles