Frequently Asked Questions

What is An Appraisal?

An appraiser provides an estimation that produces an opinion of value. The appraiser will typically use a several "approaches," typically three, to come to the estimation of value. One of the methods in use is the Cost Approach, which evaluates what it would cost to replace the improvements to the house, minus age and physical deterioration, adding the land value. The Sales Comparison Approach involves searching for comparable houses nearby and figuring out the value based on making a comparison of those houses to the home being appraised. Usually, the Sales Comparison Approach is the most accurate indicator of value of a home. One of the least common approaches in appraising homes is the Income Approach, which is commonly used to find the worth of a property based on what an investor would pay based on the income produced by the property.

WHAT DOES AN APPRAISER DO?

The real function of an appraiser's job is to provide an unbiased, professional opinion of market value to help out with financial transactions. A complete analysis is shown by the appraiser in a report.

WHATS THE DIFFERENCE BETWEEN AN APPRAISAL & A HOME INSPECTION?

Appraisers do not do perform residential property inspections and are not home inspectors. An inspection is a third-party investigation of the available structure and appliances of a property, from the roof to the bottom. The usual home inspector's report will contain an evaluation of the integrity of the house's heating system, central air conditioning system (temperature permitting), interior plumbing and electrical systems; the roof, attic, and accessible insulation; walls, ceilings, floors, windows and doors; the foundation, basement, and visible structure.

WHATS THE DIFFERENCE BETWEEN AN APPRAISAL & A COMPARATIVE MARKET ANALYSIS (CMA)?

Honestly, they have nothing in common. What the CMA depends on are superficial trends. The appraisal is based on similar proven comparable sales. The appraisal report will also contain area and construction prices. The CMA will provide a non-specific figure. Delivering a defensible and careful analysis, an appraisal will give a clear 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 AN APPRAISAL REPORT CONTAIN?

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.

HOW DO I KNOW THE VALUE IS VALID?

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).

WHERE DOES THE APPRAISER GET THE INFORMATION USED TO ESTIMATE A VALUE?

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 Metro Appraisals' 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.

HOW DO I GET READY FOR AN APPRAISAL?

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.

WHO ACTUALLY OWNS THE APPRAISAL REPORT?

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.

WHAT IS "MARKET VALUE"?

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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