Appraisals from A-Z

An appraisal report is an estimation leading to an opinion of value. The real estate appraiser will use a few “approaches,” typically three, to come to the estimation of market value. The Cost Approach is one of the approaches that appraisers use to find the value of a home. The Sales Comparison Approach involves searching for comparable houses nearby and discerning value based on making a comparison of those homes to the home in question. The third approach is the Income Approach, which is the most important method in appraising income-producing properties – it deals with estimating what an investor would pay based on the income generated by the property.

What does an appraiser do?

An appraiser produces an impartial and well-substantiated determination of market value, in support of real estate exchanges. Appraisers exhibit their professional conclusions in an appraisal report, which the client then gets.

Why request services from Home Appraising Group?

There are many reasons to order an appraisal, with the typical reason being real estate and mortgage transactions. A few other reasons for obtaining a report include:

• Applying for a loan
• To reduce your tax burden
• To show a homeowner has 30% equity and remove PMI
• To contest inflated property taxes
• If you need to settle an estate
• To offer a negotiating tool when purchasing real estate
• To find the most probable property value when listing your home
• To defend your rights if your property is being taken by means of eminent domain in a condemnation case
• Government agencies such as the IRS need an appraisal on every home
• Being in a lawsuit – an appraisal will help

How is an appraiser different than a home inspector?

The appraiser is not a home inspector and does not do a full home inspection. An inspection is a third-party evaluation of the structure and appliances of a house, from the roof to the foundation. A home inspector looks for what’s wrong with the property; an appraiser simply gives a value based on the property.

My agent performed a CMA. Is that the same as an appraisal?

To be blunt, it’s like comparing Shakespeare to reality TV. The CMA relies on indefinite trends in the market. Appraisals use comparable sales which are verifiable resources. Location and building costs are also important in an appraisal. All a CMA does is generate a “ballpark figure.” Being a documented and carefully investigated opinion of value, appraisals are defensible and stand up in legal situations.

But the biggest difference is the person doing the report. Real estate agents, who may not have a true grasp of valuation methods or the entire market, create CMA’s. An appraisal is produced by a licensed, certified professional who has made a career out of valuing properties. Likewise, the agent has a vested interest in the property’s selling price – their commission – whereas the appraiser is bound by a code of ethics to collect only a previously agreed upon sum for assignments, regardless of their outcome.

What’s in an appraisal report?

Each appraisal should indicate a believable value opinion and should document the following:

• The client and whose purposes the appraisal is to serve.
• The intended use of the report.
• The appraisal’s purpose.
• The type of value contained and a definition of that value.
• The effective date of the value opinion (Sometimes this is in the past or maybe the future for new construction!)
• Relevant property characteristics, including location, physical description, legal attributes, economic factors, the real property interest valued, and non-real estate items included in the valuation, such as personal property, trade fixtures, and even intangible factors.
• Any 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 when completing the appraisal.

Once the appraisal has been delivered, what assurance is there that the value conclusion is accurate?

In communicating an appraisal report, each appraiser must ensure the following:

• That the information analysis implemented in the appraisal was proper.

• That critical errors of omission or commission were not committed individually or collectively.

• That appraisal services were provided in a careful and judicious fashion.

• That a trustworthy, defensible appraisal report was communicated.

To become a state certified appraiser, there are intense education requirements as well as practical experience that must be logged – all with the objective of gaining the skills required to provide unbiased value opinions. Plus, appraisers must stick to a strict industry code of ethics and observe national standards of practice for real estate appraisal. The guidelines for developing an appraisal and documenting its results are guaranteed by enforcement of the Uniform Standards of Professional Appraisal Practice (USPAP).

Licensing and certification requires coursework, tests and experience working under a supervisor. Once licensed, he/she is required to engage in continuing education courses in order to keep the license up to date.

Who engages the services of appraisers?

Commonly, appraisers are hired by mortgage lenders to estimate the value of a home involved in a loan transaction. Appraisers also provide opinions in litigation cases, tax matters, and investment decisions and can be hired by homeowners or other such clients.

Where does an appraiser get the data used to estimate values?

Compiling information is one of the primary tasks an appraiser does. Data can be categorized as either specifically or generally. Specific data is gathered from the home itself; Location, condition, amenities, size and other specific data are documented by the appraiser during an inspection.

General data is gathered from numerous places. To find out about recent sales to be used as “comps,” an appraiser will often use the local Multiple Listing Service. To verify actual sales prices, we look at tax records and other public documents that are usually online nowadays. Appraisers often need to report when a property is in a flood zone, and that information is retrieved from a FEMA data outlet service.

And most importantly, the appraiser gathers general data from his or her past experiences in creating appraisals for other properties in the same market.

Why should I hire a certified appraiser?

If you’re involved in some sort of financial decision and the value of your home is relevant, you’ll want a full appraisal. For those selling a home, you’ll want to determine the price that gets you the most profit but also ensures you don’t have to wait too long for a buyer to show up; an appraisal can help with that. When buying, be sure you’re not overpaying by commissioning an independent appraisal. If you’re engaged in an estate settlement or divorce, it ensures that property is divided fairly. A house is often the single, largest financial asset anybody owns. Knowing its true value is essential to making informed financial decisions.

What exactly is PMI and how can I get rid of it?

PMI is an acronym for Private Mortgage Insurance. It protects the lender if a borrower defaults on the loan and the market price of the home is less than what the borrower still owes on the loan. Once you reach the point where your home’s equity plus the amount you’ve paid is at least 20% of your loan balance, you can have your PMI dropped.

Does the appraiser need anything from me in advance?

Make sure all areas of your home are accessible, such as the general rooms, basement, and attic. Since appraisers are third party advisors, they must gather their own information. That being said, there are a few things you can do. To help expedite an appraiser’s work, as well as ensure a more accurate report, attempt if possible, to have the following items:

• A survey or plot map of the property and building (if available).
• Any documents, such as a title policy with information on encroachments or easements encroachments or easements.
• Any inspection reports, or other recent reports for termites, EIFS (synthetic stucco) wall systems, your septic system and your well.
• Find copies of the current listing agreement, broker’s data sheet and, if the sale is “pending,” the purchase agreement.
• A bill for your most recent real estate taxes which should also contain a legal description of the property.

Does the appraisal belong to the bank or the consumer?

In most real estate transactions, the appraisal is ordered by the lender. Even though it’s the buyer that eventually pays for the report, the lender is the intended user. The buyer is entitled to a copy of the report – it’s usually bundled with all 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 homeowner hires an appraiser directly. In these cases, the appraiser may define 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.

Call us

At Home Appraisal Group we realize that appraisals can be confusing and stressful. We are here to help you in any way that we can, so please feel free to drop by or give us a call with any requests, questions, or to set up an appointment. We look forward to hearing from you.