What is an appraisal?
An appraisal report is a thought process allowing the appraiser to come to an opinion of value. The appraiser will use different approaches, typically three, to come to the estimation of worth. The first of these, the Cost Approach, is how much it would cost to replace the improvements, minus physical deterioration and other factors, then adding the land value. The Sales Comparison Approach deals with searching for similar properties in close proximity and discovering the value based on making a comparison of those properties to the subject being appraised. Generally speaking, the Sales Comparison Approach is the most accurate indicator for the worth of a home. A third approach, the Income Approach, involves estimating what an investor would pay based on the money produced by a property. Thus, this third approach is the best method in appraising income producing properties such as a restaurant.
What does an appraiser do?
The primary role of an appraiser is to provide an unbiased, professional opinion of value to assist with financial transactions. The appraiser is a licensed, certified professional who spends their career evaluating properties and does not have a vested interest in specific financial transactions, thus they are able to stay unbiased in their opinion. Appraisers show their formal analysis in appraisal reports.
How are appraisers certified?
Regulations regarding licensing and certification of Appraisers vary from state to state. However, licensing and certification is most often associated with many hours of coursework, tests, and practical experience. Once licensed, an appraiser must continue education courses to keep license current.
Why would I need an appraisal?
A variety of reasons, some examples include: applying for a loan, settling an estate, figuring-out an honest property value before selling real estate, a government agency requires it, reducing tax burden, establishing the replacement cost of PMI. PMI (Private Mortgage Insurance) can be eliminated once equity in a home reaches 20%. Real estate is often the single, largest financial asset anyone owns; thus, knowing its true value means you can make informed financial decisions.
How do I get ready for an appraisal?
The appraiser will come to the property in order to measure, take notes, snap pictures, draw a sketch of the layout, and check the general condition of the property. The best thing you can do is make sure the appraiser will have easy access to the exterior structure of buildings and interior items such as furnaces and water heaters. If possible, having the following items will allow a more accurate report as well:
- A survey of the house and property.
- A deed or title report showing 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.
What is the difference between an appraisal and a home inspection?
Home inspectors do not estimate an opinion of value. A third-party home inspector will inspect the structure of a home from top to bottom. Commonly, a home inspection report will evaluate the amenities and the necessities of the house: air conditioning, electrical functions, heating, plumbing and the structural integrity of the home: exposed insulation, walls, floors, foundation, and other physical structures.
What does an appraisal report include?
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, physical, legal, and economic attributes, real property interest valued, non-real estate items included.
- All known easements, restrictions, encumbrances, leases, reservations, covenants, contracts, declarations, special assessments, ordinances…etc.
- Division on interest, such as fractional interest, physical segment and partial holding.
- The scope of work used to complete the assignment.
What is “Market Value?”
Market value or fair market value is the most probable price that property 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 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 US dollars or in terms of financial arrangements comparable thereto; 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.
After completing the appraisal report, what assurance is there that the value indicated is valid?
In communicating an appraisal report, each appraiser must ensure the following:
- The information analysis utilized in the appraisal was appropriate.
- Significant errors of omission or commission were not committed individually or collectively.
- Appraisal services were not rendered in a careless or negligent manner.
- 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. 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).