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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?
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?
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?
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?
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.
What is the difference between an appraisal and a
home inspection?
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)?
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?
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.
After completing the report, what assurance is there
that the value indicated is valid?
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?
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.
Who do appraisers work for?
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?
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?
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?
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?
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?''
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?
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?
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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