For most people, the house and home is their most valuable financial asset. Even the very wealthy understand that real property is key to a diversified asset portfolio, whether the holdings be homes, commercial buildings or raw land. Of course, not all real estate is created equal, some land is coveted, while other tracts are not; some buildings are strategically located, while others are too remote. And some houses are in excellent condition whereas other residences are in sore need of renovation. As a financial boon, ultimately, a property must represent high value. That value is determined by an appraiser. But how do you become an appraiser?
First, to be clear, there are different kinds of appraisers. There are those who specialize in antique collectible automobiles and those with expertise in jewelry and precious stones. Yet real estate evaluators do their job with reference to markets that can soar and plummet in a very short time. In order to assess property worth that can fluctuate quickly, these experts will, among other tasks:
- Go through a house or building room by room to determine condition.
- Cover the perimeter of the property for an exterior evaluation.
- Factor in conveniences like in-ground pools, finished basements and built-in saunas.
- Note health and safety problems.
- Sketch floor plans to confirm the type of structure.
- Measure square footage.
- In commercial properties, they may estimate the value of tenant businesses as well.
Why Are Appraisers Necessary?
Value is the basis of many varied financial transactions. Mortgage lenders can only lend a certain proportion of a property’s market value. Local property taxes are assessed according to value. Meanwhile, sellers and buyers who dispute value need an informed third party. Government takings, lease negotiations and business mergers (not to mention divorces) all require an accurate valuation before proceeding.
Do Appraisers Need To Be Licensed?
The professional practice of property valuation is supervised by each state, though most if not all adhere to industry-wide standards. When conceiving of how they will measure a candidate’s professional competence and integrity, states frequently refer to the Uniform Standards of Professional Appraisal Practice (USPAP). These guidelines were actually embraced by the U.S. Congress in 1989 for appraisers working on federal building and procurement projects. In order to perform any appraisals for banks and finance companies under federal regulation, one must be either licensed or certified by their state. This credential is gained by successfully completing a state-administered examination.
Is There Just One Exam To Become An Appraiser?
Preparation and training in this profession consists of several components in order to ensure comprehensive knowledge at examination time. In fact, there are four classifications for which one can be eligible:
- Trainee/Apprentice — while a license is not required in all states for this status, it is the first step toward professional recognition.
- Licensed Residential Appraiser — at this tier, licensees can evaluate one-to-four family non-complex residences below a $1,000,000 value.
- Certified Residential Appraiser — these professionals can do all of the above without limits on property complexity or dollar value.
- Certified General Appraiser — here there is no restriction on the type of property that can be addressed: multi-unit apartment buildings, office buildings or industrial facilities are all accessible to this level.
What Knowledge Is Needed for These Credentials?
Again, state regulations apply. In general, however, there are certain core areas of appraisal practice that must be mastered when learning how to become an appraiser.
Coursework focusing on basic principles introduces the idea of real property — its definition and its identification. In addition, students learn about the variables that move real estate values up or down; the different approaches to value; how to analyze the geographical market area; determining ideal use for properties; and performing appraisal functions ethically. On average, students spend 30 hours learning principles.
Another 30 hours, perhaps, is invested in learning procedures. In essence, these are the applications of the principles noted above. Examples include how to select and organize data for various analyses; how to reconcile and synthesize multiple approaches to value; and the numerous calculations involved in both tasks.
The Uniform Standards of Professional Appraisal Practice is something everyone wanting to learn how to become an appraiser needs to become thoroughly familiar with. Preparation often involves at least 15 hours of classwork centered on the particulars of the USPAP, a compendium of best appraisal practices.
Do You Need Advanced Knowledge To Become An Appraiser?
To climb to the next rung above licensing, a prospect must invest another 75 hours — more or less — to go deeper into the principles learned earlier. Together these learning units constitute about another 75 hours of education.
Analyzing the Market/Highest and Best Use
This study centers on the general and local real estate conditions, i.e. where home prices have been and are going, as well as the economic elements influencing these movements. Highest and best use is all about studying the structural, financial and legal aspects of a property to determine its optimal value in the market.
Getting a Value on the Land/Cost Approach
Site valuation is a technique to estimate the raw land value of a property, independent of any structures that improve it. Cost approach is a manner of value measurement based on what erecting a similar house or building would require in terms of financial outlay.
Comparing Sales Prices and Revenue Streams
Sales comparison approaches use recently sold similar properties on which to base a valuation. Learning the parameters of these similarities; the distances of the “comps” from the subject property; and the acceptable time frames for sales are covered in this educational module. Related, but distinct, is the income approach — utilized especially for investment properties. Here is where value is calculated against the net cash flow generated by the units.
Putting Together Appraisal Reports
Compiling all of the data, analysis, photographs and context is a precise and ordered assignment. All of the information must be formatted and entered accurately for the customer’s benefit, according to industry standards. This is why report writing and the use of case studies is an important skill set for anyone seeking to practice in the appraisal profession.
If a general certification is the aim of someone wondering how to become an appraiser, more classroom hours are necessary — 105 hours worth. The lion’s share of this coursework (is taken up by delving further into the income approach. Since the subject properties will include larger commercial buildings, such emphasis makes sense. Additionally, this highest tier of study includes a generous helping of statistics and financial models. Not to be forgotten is that many states want to see a bachelor’s degree from higher level candidates.
Do You Need Experience To Become An Appraiser?
There is no substitute for hands-on involvement, particularly with regard to performing appraisals. Typical of hours invested is this model from a western state:
- To become a trainee/apprentice requires no experience. This stage, of course, is where it is acquired.
- To get licensed, a candidate must demonstrate 1,000 hours of work within a six-month timeframe.
- For certified residential status, 1,500 hours must be logged within one year.
- To receive the certified general designation, 3,000 hours should be demonstrated — half of those in commercial or other non-residential work.
How to Get Started To Becoming An Appraiser
A new prospect must first get a trainee license, when necessary, before working under seasoned professionals and completing the requisite coursework. After finishing these preliminaries, he or she is ready to sit for a state examination to get a license for residential appraisals.
If You’re In Need Of A Professional
Those in need of an appraisal for the purposes of home finance, legal settlements, business investment or a host of other purposes can take confidence when they retain a licensed appraiser. They are engaging a professional well-versed in real estate, construction, property law and current markets, among other things. If you are buying or selling a home, call us at 1-801-882-2292 or request a free quote today!