Competitive Market Analysis ( CMAs), broker price opinions, or so called "free market analysis appraisals" performed by real estate agents do not qualify as "certified" appraisals since the agent usually has an interest in procuring a listing and cannot be perceived as a disinterested party.  In most cases, the lender will require the appraisal report to reflect the "market value"  of the real estate for loan underwriting purposes.  Market value is derived by the application of three approaches to value.

• Cost Approach:  Estimates the value of the land plus the cost of  improvements minus accrued depreciation.  Accrued depreciation includes normal wear and tear, estimated costs for immediate repair items, functional obsolescence attributable to deficiencies or over-improvements, and external obsolescence - the value loss attributable to influences outside your property such as a landfill, toxic waste site, heavy traffic on a residential street, etc.

• Market Approach:  Estimates value by directly comparing your property to recent sales of similar neighborhood properties.  This process reflects a probable value of what buyers will "typically" pay for a property having similar features and amenities.  

• Income Approach: Estimates value based on the potential income earning ability of the property.  Usually not very meaningful for valuing single family dwellings that are predominantly owner occupied but particularly meaningful in valuing a duplex or other income property.

During the inspection, the appraiser will measure the property, record general  features, note condition, and describe the surrounding neighborhood and market.  Value is estimated by locating and comparing other sales and listings to the subject property.  The final written report summarizes important aspects of the property and reveals the "most probable" value to a "typical",  informed buyer.  Although the consumer is normally entitled to a copy of the appraisal, this is generally obtained from the lender who actually engages and contracts with the appraiser to perform  the report for loan underwriting purposes.  The value conclusion in the report is based upon "market value" defined as:

The most probable price which a property should bring in a competitive and open marker under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

[1] Buyer and seller are typically motivated:

[2] Both parties are well informed  and acting in what they consider their own best interest;

[3] A reasonable time is allowed for exposure to the open market;

[4] Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and

[5] The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by someone associated with the sale.

Federal Register, vol. 55, no. 163, August 22, 1990, pgs. 34228 and 34229


What To Ask!

[1] Is the Appraiser "approved" by the lender to perform appraisals?

[2] Is the Appraiser licensed/certified in the state where the property is located?

[3] Is the Appraiser nationally designated by a professional association such as the Appraisal Institute?

[4] How long has the Appraiser been in business?

Note: States that mandate licensing/certification merely require that the Appraiser meet a minimum standard in order to perform appraisals. Experience levels vary greatly as do "value opinions".  Quiz the Appraiser about his/her years of experience and competency in appraising certain property types or their familiarity with the location of the property. Competency applies not only to the standards of practice employed by the appraiser but to the location and type of property as well. Appraisers holding a national designation such as an  SRA, MAI, SRPA, etc. generally hold the highest level of experience.  

State laws vary as to their requirements for licensing and certification of Appraisers.  For example, North Carolina has mandatory licensing and certification.  In North Carolina, real estate agents cannot provide "opinions" of value except in the normal course of procuring a listing (example: a CMA - competitive market analysis).  They cannot provide a "drive-by" or "appraisal" for a lender for loan underwriting purposes or other similar services for a fee.  If done so, this is a violation of NC licensing laws and the agent could be subject to disciplinary action.