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.
What is an appraisal?
An appraisal is a thought process leading to an opinion of value. This opinion or estimate is arrived through a formal process that typically uses the three ''common approaches to value''. There is 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.
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 determine a reasonable price when selling real estate.
- Because a government agency such as the IRS requires it.
- If you are involved in a lawsuit.
What are the main types of appraisals and what do they include?
- Single Family Residence – Form 1004
The most frequently requested appraisal is that of a single family residential property. This type of appraisal is used by the majority of lenders when a full appraisal is needed. This type of appraisal is used for FHA, VA, Conventional loans, PMI drops, litigation and probate purposes. The Form 1004 appraisal provides a description of the neighborhood, location, site overview and home improvements to outline an accurate representation of the value of the home. This appraisal includes a floor sketch with exterior dimensions and square footage calculations. Front, rear and street photos are included of the subject along with front photos of all comparable homes. A 439 form (limiting conditions statement), parcel and location map are also provided.
- Multiple Family (2-4 Units) – Form 1025
Used most commonly by lenders for two to four unit properties, this appraisal requires a detailed presentation of income approach and rent comparables. The appraisal provides all of the information found in a 1004 appraisal, but also requires the listing of comparables in addition to the sale comparables. The fee for this appraisal is higher due to the work involved in preparing the additional comparable data.
What is the difference between an Appraisal and a Comparative Market Analysis (CMA)?
A CMA relies on vague market trends. An 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 or other real estate professionals 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. Furthermore, 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.
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. You can view the current licensing requirements for the State Of California at www.orea.ca.gov.
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 such as; location, condition, amenities, size and other specific data is gathered by the appraiser during the inspection and/or a phone interview prior to the 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. And most importantly, the appraiser gathers general data from his or her past experience in creating appraisals for other properties in the same market.
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.
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.
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%.
How do I prepare the property for the appraisal inspection?
Prior to the inspection of the property the appraiser with contact the home owner or the real estate agent to conduct a phone interview to get necessary information in regards to the home.
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 the home appraiser, is to 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 appraiser will need to inspect every room of the house. Provide the appraiser with a copy of the sales contract prior to the inspection appointment. By doing so, the appraiser ill be able to check any questionable items during the time of inspection.