FAQ - Frequently Asked Questions:
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 the meaning of
''Market Value?''
Who actually owns the
Appraisal Report?
Which home renovations
add the most to the price?
What is an appraisal?
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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What does an appraiser do?
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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Why would a person need a home appraisal?
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.
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What is the difference between an appraisal and a home
inspection?
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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What is the difference between an
Appraisal and a Comparative Market Analysis (CMA)?
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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What does the 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.
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After completing the report, what assurance is there
that the value indicated 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).
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How are appraisers certified?
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.
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Who do appraisers work for?
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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Where does an appraiser get the
information used to estimate 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 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.
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Why do I need a professional appraisal?
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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What exactly is PMI and how
can I get rid of it?
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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How do I get ready for the appraiser?
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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What is the meaning of ''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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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.
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Notice to Borrowers and Homeowners
From The California Office of Real Estate Appraisers
ALTHOUGH YOU MAY HAVE PAID A FEE FOR YOUR APPRAISAL(EVEN IF YOU PAID THE APPRAISER DIRECTLY), THE LAW PROHIBITS THE APPRAISER FROM PROVIDING YOU WITH A COPY OF THE APPRAISAL REPORT WITHOUT THE CONSENT OF THE LENDER.
HOWEVER, IF YOU PAID A FEE FOR THE APPRAISAL, YOU ARE ENTITLED TO A COPY OF IT FROM YOUR LENDER .
When an appraisal is performed for a lender, the borrower/homeowner is NOT entitled to a copy of the appraisal report from the appraiser. This is because the appraiser's client is the lender, not the borrower, even though the borrower pays the appraisal fee. A client is defined as the party who directly engages the appraiser to perform the assignment. The client is most commonly a mortgage broker, mortgage banker, or direct lender if the purpose of the appraisal assignment is for a loan transaction secured by 1-4 unit residential real property (for purchase or refinancing purposes).
Appraisers receive and accept many appraisal assignments from clients specifically instructing them to collect the appraisal fee at the door (or "C.O.D.") from the borrower. It is considered a common and generally accepted practice for the appraiser to collect this payment directly from the borrower on behalf of the client to compensate for the appraisal service. However, this does not render the borrower as the client or entitle them to a copy of the appraisal from the appraiser.
The appraiser is required to protect the confidential nature of the appraiser-client relationship, and thus is prohibited by law to provide a copy, or disclose the contents of his or her appraisal report to anyone other than the client. Any licensed appraiser violating this portion of the Uniform Standards of Professional Appraisal Practice may be subject to disciplinary action by the Office of Real Estate Appraisers (OREA).
Although the appraiser cannot provide the borrower with a copy of the appraisal without the client's permission, the borrower has every right to receive a copy of the appraisal from the lender, provided he or she has paid for the appraisal and the loan involves 1-4 unit residential property. According to California Business and Professions Code Section 11423, a borrower has up to 90 days after the lender has provided notice of their lending decision to submit a written request for a copy of the appraisal.
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Which home renovations
add the most to the price?
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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