There’s often confusion around what is an appraisal and what isn’t. Let’s all agree right from the start: a standardized form like the Fannie Mae 1004/Freddie Mac Form 70 used by the mortgage industry is not an appraisal. The appraisal is the process that you, the appraiser, undertake and complete and then report its results to the client. Most of the mortgage industry, financial industry, and public at large do not understand the difference. They think the form is the appraisal. That’s okay, but as someone who provides professional appraisal services, it’s critical that you know the difference.
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Working with the mortgage industry
If the client is a lender, they may want you to report the results of your analysis and conclusions to them on a standard industry form like the 1004/70. You can certainly comply with that request and deliver your analysis and conclusions to them by filling in a standard form, attaching explanatory and associated addenda, certifications and limiting conditions, pictures, maps, etc. as an appraisal report. Most of the time in providing appraisal services to the mortgage industry, that’s what they need and that’s what you provide.
What is an appraisal, exactly?
The Official Definitions
The 6th edition of The Dictionary of Real Estate Appraisal provides this definition of appraisal:
- “The act or process of developing an opinion of value; an opinion of value. An appraisal must be numerically expressed as a specific amount, as a range of numbers or as a relationship (e.g. not more than, more than, not less than, less than) to a specified amount (SVP)
- (noun) the act or process of developing an opinion of value, (adjective) of or pertaining to appraising and related functions such as appraisal practice or appraisal services. Comment: An appraisal must be numerically expressed as a specific amount, as a range of numbers, or as a relationship (e.g. nor or than, not less than) to a previous value opinion or numerical benchmark (e.g. assessed value collateral value) (USPAP, 2016-1017 ed.)”
A More Direct Definition
The definitions above are “official versions.” Based on the level of the sources, you are well advised to understand and utilize these formal definitions. But let’s look back to an older, more direct definition, which is often quoted by Edward R. Cameron:
“An appraisal is a supportable and defensible opinion of value.”
Key words to remember:
- Opinion of value
Keep this definition in mind in your daily practice. It can help you focus, double check yourself, and ensure that you provide your services with credible results. If every assignment you perform is supportable at every step, then you are ready, willing, and able to defend your work and conclusions to anyone who might question you. As a licensed appraiser, you have a duty to provide credible results to your client. You have a duty to yourself and to your profession to be able to support and defend everything you do.
Get in-depth answers to FAQs like “What is an appraisal?” and “What’s the difference between a full scope and limited scope appraisal?” in our classroom course: Limited Scope Appraisals and Appraisal Reports: Staying Compliant and Competitive.