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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 ''Market Value?''
Who Actually Owns the Appraisal Report?
Which home renovations add the most to the price?
What is an appraisal? Back to
top
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.
What does an appraiser do? Back
to top
An Appraiser provides a professional,
unbiased opinion of fair market value, most often to be used in mortgage
value determination.
Why would a person need a home appraisal? Back
to top
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:
What is the difference between an appraisal and a home inspection? Back to top
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. The appraiser merely notes which materials are used in the home, their obvious conditions, and which systems are present in the home. The appraisal report does not contain any detailed information on the condition of these factors.
What is the difference between an Appraisal and a Comparative Market Analysis (CMA)? Back to top
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.
Most importantly however, a CMA is created by a real estate agent who 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 the appraisal report contain? Back to top
Each report must reflect a credible estimate of value and must identify the following:
After completing the report, what assurance is there that the value indicated is valid? Back to top
In communicating an appraisal report, each appraiser must ensure the following:
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).
How are appraisers certified? Back to top
Licensing and certification comes only after many hours of coursework, tests, and practical experience. Illinois requires formal testing to earn both licensing and certification. Once an appraiser is licensed, he or she is required to take continuing education courses in order to keep the license current.
Who do appraisers work for? Back to top
Appraisers are employed as a third party 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.
Where does an appraiser get the information used to estimate value? Back to top
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. Most importantly, the appraiser gathers general data from his or her past experience in creating appraisals for other properties in the same market.
Why do I need a professional appraisal? Back to top
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 make the right financial decisions.
What exactly is PMI and how can I get rid of it? Back to top
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.
How do I get ready for the appraiser? Back to top
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, water heaters, and breaker boxes.
The following Items, if available, will help your appraiser to provide a more accurate appraisal in a shorter period of time:
What is ''Market Value?'' Back to top
Market value or fair market value is the most probable price that a property would 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? Back to top
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 is 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? Back to top
The answer to this is different depending upon the location of the home. Different markets value amenities differently. For example, adding a central air conditioner in Miami, Florida 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%.
Thank you Encore Appraisals for much of this information.
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