In the real estate industry, the roles of professionals such as realtors and appraisers can sometimes blur in the eyes of the general public. While both are integral to the real estate transaction process, their functions and qualifications are distinct. The question, "Can realtors do appraisals?" often arises when buyers and sellers want to understand the nuances of property valuation and who holds the authority to provide an official appraisal. The answer to this question is critical in protecting the financial interests of all parties involved in a real estate transaction.
Defining the Role of a Realtor
A realtor, by definition, is a licensed real estate professional who is a member of the National Association of Realtors (NAR), adhering to a strict code of ethics and best practices. Realtors assist clients in buying, selling, or leasing properties, guiding them through the transactional process. Their expertise includes market knowledge, contract negotiation, and facilitating communication between buyers, sellers, and other professionals such as mortgage lenders, inspectors, and appraisers.
Realtors rely on a range of tools to assess property values, including comparative market analysis (CMA). A CMA is an estimate of a property's value based on the sale prices of similar properties in the same area. However, this is not an appraisal. It is, instead, a marketing tool that helps realtors advise their clients on how to price a home for sale or what offer to make when purchasing.
The Role of an Appraiser
An appraiser, on the other hand, is an impartial third party whose sole purpose is to provide an objective valuation of a property. Appraisers undergo specialized education, training, and certification processes to earn their designation. This includes not only state-specific requirements but also federal standards mandated by the Appraiser Qualifications Board (AQB) and enforced by the Appraisal Foundation.
A property appraisal is a more formal and rigorous process than a CMA. It involves a detailed analysis of the property's physical characteristics, location, market conditions, and recent comparable sales. Appraisers are often hired by lenders to determine whether a property's value is sufficient to secure a mortgage loan. Unlike a realtor’s CMA, an appraisal holds legal and financial weight. It is a requirement for most federally-backed mortgages and serves as an unbiased guarantee to the lender that the property value justifies the loan amount.
The Legal Line: Realtors Are Not Appraisers
The key distinction between a realtor and an appraiser is their licensing and authority. While realtors may have deep knowledge of market trends and property values, they are not qualified to perform appraisals. Appraisal work requires a different set of skills, educational credentials, and regulatory oversight.
For real estate transactions, especially those involving a mortgage, an appraisal conducted by a licensed appraiser is a non-negotiable requirement. The lender cannot rely on a realtor’s CMA as a substitute for a formal appraisal, as it lacks the stringent objectivity and certification required in the lending process. Therefore, realtors, even with their market expertise, are legally prohibited from conducting appraisals unless they hold a separate appraiser’s license.
However, this does not mean that realtors do not play a vital role in determining property value. Realtors use their knowledge of the local market to provide a ballpark figure, but their valuation methods lack the formal procedures and legal standing of a licensed appraiser's report. CMAs serve as a useful tool for sellers to set an asking price and for buyers to form their offer, but the lender will ultimately require an appraisal before approving any financing.
Dual-Licensed Professionals: A Small Exception
In rare instances, some real estate professionals hold both a real estate license and an appraiser's license. These dual-licensed individuals are qualified to both sell real estate and perform appraisals. However, strict ethical guidelines prevent them from conducting both roles within the same transaction. For example, if a realtor/appraiser is representing a client in a property sale, they cannot also serve as the appraiser for that transaction due to the inherent conflict of interest. The independence and impartiality of the appraisal process are crucial for maintaining trust in the system, and combining the two roles would violate the principles of neutrality expected of appraisers.
While these dual-licensed professionals exist, they are not common, and the vast majority of realtors do not hold appraisal licenses. Buyers and sellers should be aware that when they work with a realtor, they are not receiving an official appraisal unless the individual has explicitly disclosed their credentials as a licensed appraiser.
The Risks of Relying on Realtor Valuations
One of the common misunderstandings in real estate is the over-reliance on CMAs provided by realtors. While CMAs are valuable for gaining insight into local market trends and property values, they are not a substitute for a professional appraisal. Using a realtor’s valuation in place of an appraisal could lead to inflated or undervalued property assessments, jeopardizing financing and legal compliance.
Moreover, CMAs can sometimes be influenced by subjective factors, such as a realtor’s desire to secure a listing by offering a higher estimated price than the market supports. Since realtors work in the interests of their clients, their valuations can sometimes reflect those motivations. Appraisers, on the other hand, are bound by strict ethical guidelines to remain impartial, providing an objective valuation based on verifiable data.
It is also important to note that in some competitive real estate markets, buyers and sellers may choose to forego an appraisal contingency in their contracts, especially in all-cash offers. However, this does not eliminate the need for an appraisal in transactions involving financing, where the lender will still require an independent valuation to safeguard the loan.
How Realtors and Appraisers Work Together
Although realtors cannot conduct appraisals, they frequently work in tandem with appraisers, especially during the sale process. Realtors may provide appraisers with relevant information about the property and the local market, though this should not interfere with the appraiser’s independent judgment. Similarly, realtors can help clients understand how appraisals work and guide them through any challenges that arise, such as a low appraisal.
Realtors also play a key role in helping clients prepare for an appraisal by advising them on how to present their home in the best possible light. For example, realtors might suggest repairs or improvements that could increase the home’s value, as well as provide detailed records of any upgrades made to the property that the appraiser may consider in their valuation.
Realtors are Marketers - not appraisers
While realtors offer valuable insight into property values through comparative market analyses, they are not appraisers and do not have the legal authority to provide official appraisals. The distinction between a CMA and an appraisal is significant, as appraisals serve a critical role in ensuring the integrity of the real estate transaction, especially when financing is involved. Appraisals must be performed by licensed professionals who are independent and impartial, unlike realtors, whose role is to advocate for their clients.
Homebuyers, sellers, and real estate professionals must recognize the limits of a realtor’s expertise when it comes to property valuation. By understanding the different responsibilities of realtors and appraisers, all parties can better navigate the real estate process, ensuring that property values are assessed accurately and in compliance with legal and financial standards.
