Appraisal
An Appraisal an opinion of value based on supportable evidence and approved methods.
A real estate appraisal report is an opinion of market value on a property given to a lender or client with detailed and accurate information.
An appraiser is an independent person trained to provide an unbiased opinion of value in an impartial and objective manner, according to the appraisal process. Appraising is a professional service performed for a fee.
Regulation of Appraisal Activities
Title XI of the federal Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) requires that most appraisals used in connection with a federally related transaction be performed by someone licensed or certified by law.
A federally related transaction is any real estate-related financial transaction in which a federal financial institution or regulatory agency engages in, contracts for, or regulates and requires the services of an appraiser. This includes transactions involving the sale, lease, purchase, investment, or exchange of real property. It also includes the financing, refinancing, or the use of real property as security for a loan or an investment, including mortgage-backed securities.
Federal law requires that appraisers be licensed or certified according to individual state law. State qualifications must conform to the federal requirements that, in turn, follow the criteria for certification established by the Appraiser Qualifications Board of the Appraisal Foundation.
The Real Estate Appraiser Licensing Act of 2002, as amended in 2009, provides for mandatory licensure with limited exceptions of Illinois appraisers.
Illinois recognizes three categories of appraisers:
- Associate real estate trainee appraiser – entry level appraiser; all reports must be cosigned by a state certified residential real estate appraiser or state certified general real estate appraiser.
- Certified residential real estate appraiser – qualified to appraise residential property of one unit to four units without regard to transaction value or complexity, but with restrictions in accordance with Title XI, USPAP, and criteria established by the Appraisal Qualifications Board (AQB).
- Certified general real estate appraiser – qualified to appraise all types of real property without restrictions as to the scope of practice subject to USPAP requirements.
The appraiser m
ust retain contracts, logs, and appraisal reports used in meeting pre-license experience requirements for a period of five years.
Only individuals (not corporations, partnerships, firms, or groups) may be certified as appraisers or act as associate real estate appraisers. A certified appraiser may, however, sign appraisal reports on behalf of a business entity.
An appraisal report prepared by an appraiser recognized under the act must identify on the report, by name, the individual who ordered or originated the appraisal assignment. The appraiser must retain the original copy of all contracts engaging his services as an appraiser and all appraisal reports, including any supporting data used to develop the appraisal report, for a period of not less than five years, or two years after the final disposition of any judicial proceeding in which testimony was given, whichever is longer.
The Real Estate Appraiser Licensing Act of 2002 established a fee structure and disciplinary and enforcement mechanism. Associate real estate trainee and certification candidates also must meet strict competency, educational, examination, and experience requirements. The appraisal profession requires all Illinois associate trainees to become certified residential appraisers within two years of initial licensure. An individual appraiser may not use the titles “state certified” or “associate real estate trainee appraiser” unless he is recognized as such by the state.
Real Estate Broker Competitive Market Analysis
Not all estimates of value are made by professional appraisers. Real estate licensees often must help a seller arrive at a listing price or assist a buyer in determining an offering price for property without the aid of a formal appraisal report. In such a case, the licensee would use a comparative market analysis (CMA). A CMA is distinctly different from an appraisal report offered by a licensed appraiser. An appraisal is based on an analysis of properties that have actually sold; the CMA, in contrast, features properties similar to the subject property in size, location, and amenities.
The CMA is based on:
- recently closed properties (solds),
- properties currently on the market (competition for the subject property), and
- properties that did not sell (expired listings in the area).
Broker’s Price Opinion (BPO)
A broker’s price opinion (BP0) is a less-expensive alternative of valuating properties often used by lenders working with home equity lines, refinancing, portfolio management, loss mitigation, and collections. A BPO cannot be used if the matter involves a federally related transaction that requires an appraisal and/or the transaction occurs in a state that requires an appraiser’s license.
