| What
is an appraisal?
An appraisal is a thought process leading to an opinion of value
performed by a state licensed appraiser. 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 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.
· 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 subject neighborhood and property characteristics, including
location attributes, physical attributes, legal attributes, economic attributes,
the real property interest valued,
· 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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