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:
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%.
Welcome to Alaska 1st Appraisals