What is an appraisal?
What does an appraiser do?
Why would a person need a home appraisal?
What is the difference between an appraisal
and a home inspection?
What is the difference between an Appraisal
and a Comparative Market Analysis (CMA)?
What does the appraisal report contain?
After completing the report, what assurance
is there that the value indicated is valid?
How are appraisers certified?
Who do appraisers work for?
Where does an appraiser get the
information used to estimate value?
Why do I need a professional appraisal?
What exactly is PMI and how can I get rid of it?
How do I get ready for the appraiser?
What is ''Market Value?''
Who Actually Owns the Appraisal Report?
Which home renovations add the most to the
price?
What is an appraisal? Back
to top
An appraisal is a thought process leading to an opinion of value.
This opinion or estimate is arrived at through a formal process that
typically uses the three ''common approaches to value''. They are
the Cost Approach - which is what it would cost to replace the
improvements, less physical deterioration and other factors, plus
the land value. There is the Sales Comparison Approach - which
involves making a comparison to other similar, nearby properties
which have recently sold. The Sales Comparison Approach is normally
the most accurate and best indicator of value for a residential
property. The third approach is the Income Approach, which is of
most importance in appraising income producing properties - it
involves estimating what an investor would pay based on the income
produced by the property.
What does an appraiser do? Back
to top
An appraiser provides a professional, unbiased opinion of market
value, to be used in making real estate decisions. Appraisers
present their formal analysis in appraisal reports.
Why would a person need a home appraisal? Back
to top
There are many reasons to obtain an appraisal with the most common
reason being real estate and mortgage transactions. Other reasons
for ordering an appraisal include:
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To obtain a loan.
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To lower your tax burden.
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To establish the replacement cost of insurance.
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To contest high property taxes.
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To settle an estate.
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To provide a negotiating tool when purchasing real estate.
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To determine a reasonable price when selling real estate.
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To protect your rights in a condemnation case.
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Because a government agency such as the IRS requires it.
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If you are involved in a lawsuit.
What is the difference between an appraisal
and a home inspection? Back to top
The appraiser is not a home inspector nor does he/she do a complete
home inspection. An inspection is a third-party evaluation of the
accessible structure and mechanical systems of a house, from the
roof to the foundation. The standard home inspector's report will
include an evaluation of the condition of the home's heating system,
central air conditioning system (temperature permitting), interior
plumbing and electrical systems; the roof, attic, and visible
insulation; walls, ceilings, floors, windows and doors; the
foundation, basement, and visible structure.
What is the difference between an Appraisal & a Comparative Market Analysis (CMA)? Back
to top
Simply put, the difference is night and day. The CMA relies on vague
market trends. The appraisal relies on specific, verifiable
comparable sales. In addition, the appraisal looks at other factors
like condition, location and construction costs. A CMA delivers a
''ball park figure.'' An appraisal delivers a defensible and
carefully documented opinion of value.
But the biggest difference is the person creating the report. A CMA
is created by a real estate agent who may or may not have a true
grasp of the market or valuation concepts. The appraisal is created
by a licensed, certified professional who has made a career out of
valuing properties. Further, the appraiser is an independent voice,
with no vested interest in the value of a home, unlike the real
estate agent, whose income is tied to the value of the home.
What does the appraisal report contain? Back
to top
Each report must reflect a credible estimate of value and must
identify the following:
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The client and other intended users.
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The intended use of the report.
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The purpose of the assignment.
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The type of value reported and the definition of the value
reported.
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The effective date of the appraiser's opinions and conclusions.
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Relevant property characteristics, including location
attributes, physical attributes, legal attributes, economic
attributes, the real property interest valued, and Non real estate
items included in the appraisal, such as personal property,
including trade fixtures and intangible items.
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All known: easements, restrictions, encumbrances, leases,
reservations, covenants, contracts, declarations, special
assessments, ordinances, and other items of a similar nature.
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Division of interest, such as fractional interest, physical
segment and partial holding.
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The scope of work used to complete the assignment.
After completing the report, what assurance
is there that the value indicated is valid? Back
to top
In communicating an appraisal report, each appraiser must ensure the
following:
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That the information analysis utilized in the appraisal was
appropriate.
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That significant errors of omission or commission were not
committed individually or collectively.
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That appraisal services were not rendered in a careless or
negligent manner.
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That a credible, supportable appraisal report was communicated.
Most states require that real estate appraisers are state licensed
or certified. The state licensed or certified appraiser is trained
to render an unbiased opinion based upon extensive education and
experience requirements. To become licensed or certified, appraisers
must fulfill rigorous education and experience requirements. In
addition, appraisers must abide by a strict industry code of ethics
and comply with national standards of practice for real estate
appraisal. The rules for developing an appraisal and reporting its
results are insured by enforcement of the Uniform Standards of
Professional Appraisal Practice (USPAP).
How are appraisers certified? Back
to top
Regulations regarding licensing and certification of Real Estate
Appraisers vary from state to state. However, licensing and
certification is most often associated with many hours of
coursework, tests and practical experience. Once an appraiser is
licensed, he or she is required to take continuing education courses
in order to keep the license current. To see the specific
requirements for any state.
Who do appraisers work for? Back
to top
Typically, appraisers are employed by lenders to estimate the value
of real estate involved in a loan transaction. Appraisers also
provide opinions in litigation cases, tax matters and investment
decisions.
Where does an appraiser get the information
used to estimate value?
Back to top
Gathering data is one of the primary roles of an appraiser. Data can
be divided into Specific and General. Specific data is gathered from
the home itself. Location, condition, amenities, size and other
specific data are gathered by the appraiser during an inspection.
General data is gathered from a number of sources. Local Multiple
Listing Services (MLS) provide data on recently sold homes that
might be used as comparables. Tax records and other public documents
verify actual sales prices in a market. Flood zone data is gathered
from FEMA data outlets, such as a la mode's InterFlood product. And
most importantly, the appraiser gathers general data from his or her
past experience in creating appraisals for other properties in the
same market.
Why do I need a professional appraisal? Back
to top
Anytime the value of your home or other real property is being used
to make a significant financial decision, an appraisal helps. If
you're selling your home, an appraisal helps you set the most
appropriate value. If you're buying, it makes sure you don't
overpay. If you're engaged in an estate settlement or divorce, it
ensures that property is divided fairly. A home is often the single,
largest financial asset anybody owns. Knowing its true value means
you can the right financial decisions.
What exactly is PMI and how can I get rid of it? Back
to top
PMI stands for Private Mortgage Insurance. It insures a lender
against loss on homes purchased with a down-payment of less than
20%. Once equity in the home reaches 20% you can eliminate the PMI
and start saving immediately.
How do I get ready for the appraiser? Back
to top
The first step in most appraisals is the home inspection. During
this process, the appraiser will come to your home and measure it,
determine the layout of the rooms inside, confirm all aspects of the
home's general condition, and take several photos of your house for
inclusion in the report. The best thing you can do to help is make
sure the appraiser has easy access to the exterior of the house.
Trim any bushes and move any items that would make it difficult to
measure the structure. On the inside, make sure that the appraiser
can easily access items like furnaces and water heaters.
The following Items, if available, will help your appraiser to
provide a more accurate appraisal in a shorter period of time:
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A survey
of the house and property.
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A
deed or title report showing the legal description.
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A
recent tax bill.
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A
list of personal property to be sold with the house if
applicable.
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A copy of the original plans.
What is ''Market Value?'' Back
to top
Market value or fair market value is the most probable price that a
property should bring (will sell for) in a competitive and open
market under all conditions requisite to a fair sale, the buyer and
seller, each acting prudently, knowledgeably and assuming the price
is not affected by undue stimulus. Implicit in this definition is
the consummation of a sale as of a specified date and the passing of
title from seller to buyer under conditions whereby: (1) buyer and
seller are typically motivated; (2) both parties are well informed
or well advised; (3) a reasonable time is allowed for exposure to
the open market; (4) payment is made in terms of cash in U.S.
dollars or in terms of financial arrangements comparable thereto;
and (5) the price represents the normal consideration for the
property sold unaffected by special or creative financing or sales
concessions granted by anyone associated with the sale.
Who Actually Owns the Appraisal Report? Back
to top
In most real estate transactions, the appraisal is ordered by the
lender. While the home buyer pays for the report as part of the
closing costs, the lender retains the right to use the report or any
information contained within. The home buyer is entitled to a copy
of the report - it's usually included with all of the other closing
documents - but is not entitled to use the report for any other
purpose without permission from the lender.
The exception to this rule is when a home owner engages an appraiser
directly. In these cases, the appraiser may stipulate how the
appraisal can be used; for PMI removal, or estate planning or tax
challenges, for example. If not stipulated otherwise, the home owner
can use the appraisal for any purpose.
Which home renovations add the most to the
price? Back to top
The answer to this is different depending upon the location of the
home. Different markets value amenities differently. Adding a
central air conditioner in Houston, Texas may add significant value,
while putting one in a home located in Buffalo, New York might not
have much impact.
