Residential Appraisals and Fair Market Value Determination

A real estate appraiser is NOT the one who is consulted with FIRST to determine or establish fair market value of homes for sale on the market ... it was a REALTOR who FIRST set or established the sales price!  A real estate appraiser comes along much later in the process... AFTER the Buyer and Seller have already agreed to the sales price in the real estate contract. An agent representing the buyer has counseled his client already on what to offer for the property by conducting a Comparative Market Analysis (CMA), by rendering a Broker's Price Opinion (BPO), or by furnishing his buyer client with a comprehensive Realtors' Property Resource (RPR) quantitative and statistical report and analysis suggesting the current fair market value of the subject property. Before, or prior to, the Seller and Buyer coming to an agreement on the sales price of a home; rarely, if ever, is a real estate appraiser consulted with first.  

The definition of fair market value is:  the price an able willing Buyer is willing to pay for something under no obligation or coercion, and the price a Seller is willing to sell something who is also not forced to sell or who has no obligation and has not been coerced into selling something.  In other words, "fair market value" is determined by agreement of Buyers and Sellers, NOT by the opinion of value of a real estate appraiser.

An appraiser may "validate" or "rubber stamp" the sales price for the buyer's mortgage lender, investor or underwriter to protect the lender or investor's interest in putting up the money for the buyer to acquire the property; but their opinion of value alone DOES NOT establish fair market value.  Fair market value is always determined by agreement of free, able and willing buyers and sellers, and NOT by real estate appraisers per se.  

Typically, the real estate appraiser's fee is always paid by the Buyer as part of their lender's closing costs.  I have heard real estate appraisers say, "I work for the lender in this transaction". WRONG!! You work for the one who pays you!  Since the buyer is ultimately paying the real estate appraiser's fee as part of the lender's fees and charges, the real estate appraiser's fiduciary duty and loyalty must be to the buyer, and not to the lender directly. The Buyer is the real estate appraiser's client, NOT the lender.  

And since the Buyer is the one who is paying the real estate appraiser, the Buyer (not the lender) should be the one who selects or chooses the appraiser or appraisal management company (AMC) to conduct the financing contingency appraisal pursuant to the sales contract. The lender is NOT a party to the sales contract; it is typically between Seller and Buyer alone.  The sales contract between Buyer and Seller typically does not require third party approval.  The real estate sales contract financing contingency should not be confused with a legal requirement for third party approval such as by a court in a bankruptcy case, where a Trustee has been appointed by the court, etc.  The Buyer and Seller in a real estate sales contract are free to choose whoever they want as the appraiser, and be bound (or not bound) by the opinion of value of the residential real estate appraiser.  A real estate appraiser renders and OPINION of fair market value.  This OPINION is certainly rebuttable.  Real estate appraisers often are not as familiar with a particular neighborhood or subdivision as the Realtors or agents involved in the transaction. 

In certain circumstances such as refinances, the real estate appraiser only does a "drive-by" of the subject property being appraised or valued and does not actually inspect or examine the subject property them self first hand (outside/exterior AND inside/interior) of the property and all of its appurtenances, but looks at the property only from the street or from inside their vehicle; or surreptitiously through on-line pictures or a written description of the property from the listing agent or other party, which may or may not be accurate.  A real estate appraiser should ALWAYS inspect the interior of the subject property being appraised (and all of its appurtenances) and should never be allowed to conduct a street view "drive-by" appraisal only.