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FAQ
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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. For a more detailed description of the appraisal process click
here: What is an appraisal?
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:
To obtain a loan.
To lower your tax burden.
To establish the replacement cost of insurance.
To contest high property taxes.
To settle an estate.
To provide a negotiating tool when purchasing real estate.
To determine a reasonable price when selling real estate.
To protect your rights in a condemnation case.
Because a government agency such as the IRS requires it.
If you are involved in a lawsuit.
For more details on when you might
need an appraisal click here: When to get an
Appraisal
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 and 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:
The client and other intended users.
The intended use of the report.
The purpose of the assignment.
The type of value reported and the definition of the value reported.
The effective date of the appraiser's opinions and conclusions.
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.
All known: easements, restrictions, encumbrances, leases, reservations,
covenants, contracts, declarations, special assessments, ordinances, and other
items of a similar nature.
Division of interest, such as fractional interest, physical segment and
partial holding.
The scope of work used to complete the assignment.
For a more
detailed look at what goes into an appraisal report click here: Sample Appraisal Report
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:
That the information analysis utilized in the appraisal was appropriate.
That significant errors of omission or commission were not committed
individually or collectively.
That appraisal services were not rendered in a careless or negligent
manner.
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 click here.
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. For a detailed discussion of PMI
and how to get rid of it click here: What is PMI
and how to get rid of it
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:
A survey of the house and property.
A deed or title report showing the legal description.
A recent tax bill.
A list of personal property to be sold with the house if applicable.
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.
As a rule, the most value
returned from renovating a home comes in the kitchen. According to one national
survey, kitchen remodels returned an average of 88% of the investment. In other
words, a $10,000 kitchen remodeling project would add approximately $8,800 to
the value of the home. Bathrooms were second, returning 85%. |
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