|
|
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?
Frequent mistake of homeowners?
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 is typically prepared using incomplete or vague market data often failing to adequately consider other aspects of a "comparable" sale other than the sale price and certain physical features. In our almost 20 years of practice, we have had the opportunity to reveiw many CMAs prepared for home owners that also chose to get an appraisal. The three most common problems with CMAs were 1) The sales selected for comparison were not comparable; 2) the sales selected were physically similar but not comparable in location; and the most frequent problem 3) The CMA ignored marketing time and the sale price to listing price ratio of the "comparable". Number 3 which is the most frequent problem is also the most costly to the homeowner. In an upwardly moving market it is imperative that market exposure and listing prices be considered. How many people do you know that sold their home to the first prospective buyer to look at it, for asking price or very close to it? How many times have you seen those same homes get resold a short time later for a considerably higher price? The price of an appraisal is small compared to the thousands of dollars that you might be leaving on the table.
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 hired by lenders to estimate the value of real estate involved in a loan transaction whether it be a purchase or refinance. Appraisers also provide opinions in litigation cases, tax matters and investment decisions. Attorneys, government agencies, developers, real estate agents, tax planners, insurance companies and home owners are also frequent users of appraisal services.
Frequent Mistake of Homeowners? Back to top
A frequent mistake made by many homeowners is to engage an appraiser to prepare an appraisal report that is to be used for financing through a lending institution. It is a Federal Government requirement that appraisals for lending purposes be engaged by the lender. If a lender tells a homeowner to "get their own appraisal" that homeowner has a very good chance of having to pay for two appraisals if the homeowner decides to go to another lender. When the lender orders the appraisal and the homeowner later switches lenders, then the appraisal can be transferred from one lender to the next with usually little problem. Lenders abiding by the Federal Regulations will not accept an appraisal done directly for a loan applicant. If a lender tells you to get your own appraisal, we suggest that you ask that lender to order the appraisal or get a new lender if they will not.
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, an appraisal report is ordered by a lender. While the home buyer or loan applicant pays for the appraisal report, the lender retains the right to use the appraisal report or any information contained within as it relates to the intended use. There are actually two owners of the appraisal report as they are two things, an appraisal and a report. The appraisal is the estimate of value developed by the appraiser. The report is the means of which this estimate of value is delivered to the client typically in some form of a written document. The client that orders the report owns the written report. The appraiser that developed the opinion of value, the appraisal, owns this opinion, hence owns the appraisal. The appraisal conclusions, remain the property of the appraiser. The lender is the client that uses those conclusions to evaluate the collateral that is being offered as security for a loan. The home buyer is entitled to a copy of the report (from the lender) - it's usually included with all of the other closing documents - but is not entitled to use the report or the appraiser's conclusions for any other purpose without permission from the lender AND the appraiser. Permission to use the appraisal report for other uses is typically not denied.
When a home owner engages an appraiser directly, then it is the home owner that owns the report, however, the appraiser still owns the appraisal. The home owner will engage an appraiser for many reasons such as listing a property for sale, PMI removal, estate planning or tax challenges, for example. The home owner should never engage an appraiser when the appraisal is for any type of financing without first talking to their lender. Otherwise, the home owner might end up paying for two appraisals. See Who do Appraisers work for? above.
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%.
|
|
