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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? |
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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. |
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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. |
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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 or to refinance your current mortgage.
• 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. |
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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. |
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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. |
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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. |
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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). |
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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. |
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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. |
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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
floodmaps.com. And most importantly, the appraiser gathers general data from
his or her past experience in creating appraisals for other properties in the same
market. |
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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. |
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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. |
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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. |
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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. |
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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.
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