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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.
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.
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.
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.
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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