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Frequently Asked Questions
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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. 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 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 or mortgage broker.
This lender or broker becomes the client and is
the party that the appraiser certifies the
appraised value to. While the borrower
(homeowner or buyer) often
pays for the report either at the time of the
appraisal or as part of the closing
costs, the lender/client 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/client. If the
borrower chooses to change lenders/brokers for
any reason the appraisal report can not be
transfered to the new lender or broker as the
client who ordered the report retains the rights
to the report.
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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