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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.
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.
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%.
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