While a buyer and seller may come to some agreement concerning the worth of a given property, their views alone are generally not sufficient to satisfy a lender. A third party, an appraiser, is used to estimate the fair market value of a home.

Although there are various groups of professional appraisers that offer certification programs, appraisers are not licensed by civil authotities. In theory, anyone can be appraiser. But in practice, the acceptance of a particular appraiser is based on that individual's experience, training, and familiarity with local real estate.

In most residential cases, an appraiser is retained by a lender to assure that a loan is fully secured by the value of a home. With VA and FHA purchases, appraisals are required to satisfy not only questions of value but also habitability.

It is the appriaser's job to find the "fair market value" of a property. In evaluating residential properties, this generally means a careful comparison with past sales in the immediate area.

To paraphrase one appraisal report, fair market value is defined as the highest price, estimated in terms of money, that the property will bring if exposed for sale in the open market. A reasonable period of time must be allowed to find a purchaser, who buys with a knowledge of all the uses to which the property can be adapted; the buyer and the seller must both be willing to enter into the transaction.

It should be understood that an appraisal is an estimate rather than an absolute valuation. Also, it is important that the appraiser makes a judgement for the sole consideration of an appraisal fee. Obviously an appraiser who represents, or hopes to represent, one party to a sale is not in a posture of absolute neutrality.

There is often the question of whether or not tax assessments represent some measure of fair market value. The best answer to this question is that, for lending purposes, financial institutions rely almost exclusively on experienced appraisers. Tax assessments, as tools to obtain a new mortgage loan, are just about useless.

For buyers, the basically conservative nature of the appraisal process is a strong protection in the marketplace. In one recent case, the selling price of a property was dropped because they appraisal report showed that the value of the home was not sufficient to protect the lender's interest. The buyer saved several thousand dollars when the contract price was renogotiated downward.