Answers to frequently asked questions
- What is an appraisal?
The procedure of creating an appraisal deals with an investigation which leads to an opinion of value. This opinion or estimate is concluded through a formal process that commonly uses the three main “common approaches to value”. One of the methods in use is the Cost Approach, which evaluates what it would cost to restore the improvements to the home, less the age and physical dilapidation, plus the land value. Another of the methods is the Sales Comparison Approach – which concerns finding a comparable analysis to other similar properties within a close proximity which have recently sold. The Sales Comparison Approach is commonly the most definitive and clearest indicator of value for a residential property. One of the least common approaches in appraising residential properties is the Income Approach, which is generally used to determine the value of a property based on what an investor would pay based on the capital produced by the property.
- What does an appraiser do?
An appraiser forumlates a fair and credible determination of market value, in the support of real property transactions. Appraisers demonstrate their professional analysis in appraisal reports.
- What would cause me to require your services?
There are a lot of reasons to get an appraisal with the usual reason being real estate and mortgage transactions. Other reasons for obtaining an appraisal include:
- To get a loan.
- To lower your property taxes.
- To demonstrate a homeowner’s acquired equity and remove Primary Mortgage Insurance.
- To challenge high property taxes.
- If you need to take care of an estate.
- To give you a leg-up when purchasing real estate.
- To figure out the most probable sales price when listing your home.
- To ensure parties are provided just compensation in eminient domain cases.
- Government agencies such as the IRS need an appraisal on every home.
- If you are ever involved in a lawsuit.
- Is an appraisal the same as a home inspection?
Appraisers do not do provide home inspections and are not home inspectors. The point of a home inspection is to evaluate the structure of the home from basement to rooftop. The usual property 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.
- Is an appraisal the same as a comparative market analysis (CMA)?
To be blunt, it’s like comparing sugar and saccharin. What the CMA relies upon are vague trends. The appraisal depends on similar definite comparable sales. The appraisal report will also include area and construction prices. A CMA delivers a “ball park figure.” Being a documented and carefully investigated opinion of value, appraisals are defensible and stand up in legal situations.
But the largest differentiator is who’s doing the report. A CMA is written by a real estate agent who may or may not be trained in technical valuation concepts or even have a handle on market trends. The appraisal is created 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 work they perform, regardless of their value conclusion.
- What are the contents of an appraisal report?
Each report must demonstrate a believable estimate of value and must clearly state the following:
- Who engaged the appraiser and other intended users.
- How the appraisal is supposed to be used.
- The appraisal’s purpose.
- The type of value contained and a definition of the value reported.
- The effective date of the appraiser’s opinions and conclusions.(Sometimes this is in the past or maybe the future for new construction!)
- Characteristics of the property that have a bearing on the value, including: location, physical description, legal attributes, economic attributes, the real property interest valued, and non-real estate items included in the appraisal, such as personal property, items that are more or less permanently installed and even intangible considerations.
- Any known easements, restrictions, encumbrances, leases, reservations, covenants, contracts, declarations, special assessments, ordinances, and the like.
- Division of interest, such as fractional interest, physical segment and partial holding.
- The scope of work used to complete the assignment.
- Once the appraisal has been delivered, how can I have certainty that the final number is accurate?
In the documentation of an appraisal, each appraiser must see to it that each of the items below are covered:
- That the information analysis utilized in the appraisal was proper.
- That major errors of omission or commission were not committed individually or collectively.
- That appraisal services were delivered in a careful and conscientious fashion.
- The final appraisal report was clear, credible and defensible.
To become a state licensed appraiser, we must satisfy considerable education and experience requirements that train us to formulate an unbiased opinion. Likewise, appraisers must follow a stringent industry code of ethics and observe national standards of practice for real estate appraisal. The rules for working up an appraisal and reporting its results are guaranteed by enforcement of the Uniform Standards of Professional Appraisal Practice (USPAP).
Regulations regarding licensing and certification vary from state to state. However, licensing and certification is most often associated with many hours of classroom study, tests and practical experience. Once licensed, he or she is required to take continuing education courses so that the license doesn’t expire. To see the specific requirements for any state click here.
- Who are an appraiser's customers?
Commonly, appraisers are hired by lenders to render a value opinion on a home involved in a loan transaction – to make sure the property is indeed adequate collateral for the loan. Appraisers also provide opinions in litigation cases, tax matters and investment decisions.
- Where does CeCe Mendonsa get the data used to estimate values in Anchorage Municipality or other areas?
One of the primary tasks an appraiser engages in is to collect data. Data can be classified as either Specific or General. Specific data is from the property itself; Location, condition, amenities, size and other specifics are noted by the appraiser during an inspection.
General data is received from a number of places. To find out about recently sold homes to be used as “comps”, we typically use the local Multiple Listing Service. Tax records and other courthouse documents reveal actual sales prices in a market. Appraisers routinely need to report when a property is in a flood zone, so that information is retrieved from a FEMA data outlet such as a la mode’s InterFloodproduct.
And last but not least, the appraiser assimilates general data from his or her past experience in doing assignments for other houses in the same market.
- Why should I hire a licensed appraiser?
PMI stands for Private Mortgage Insurance. It protects the lender in case a borrower doesn’t pay on the loan and the market price of the property is lower than what the borrower still owes on the loan. You can have your PMI dropped once you’ve achieved 20% equity in your home through appreciation and principal payments.
- Does the appraiser need anything from the homeowner in advance?
We begin with an inspection of the property. What this entails is the appraiser, after setting up an appointment, personally going through the home – recording the layout of the rooms, taking photos and documenting the general condition of its features. Is there anything you can do to help? Yes there is! First, be sure the appraiser has easy access to the exterior of the house (gates aren’t locked, etc). Trim any shrubs and move any items that would make it difficult to measure the structure. On the inside, make sure the appraiser can get to items like furnaces and water heaters.
You can make our visit go faster and improve the quality of the appraisal report by having the following things on hand:
- Information on the latest purchase of the property in the last three years.
- A list of any personal property that is part of the home and you intend to be sold with the home, such as a oven, or a washer and dryer, if applicable.
- Most recent real estate tax bill from Anchorage and or legal description of the property.
- Any inspection reports, or other recent reports for termites, EIFS (synthetic stucco) wall systems, septic systems and wells.
- A list of “proposed” improvements if the property is to be appraised “as complete”.
- How does an appraiser define Market Value?
In real estate appraising, Market Value is commonly defined as:
“The most probable price (in terms of money) which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and 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: the buyer and seller are typically motivated; both parties are well informed or well advised, and acting in what they consider their best interests; a reasonable time is allowed for exposure in the open market; payment is made in terms of cash in United States dollars or in terms of financial arrangements comparable thereto; and 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.”
- Does the appraisal belong to the bank or the consumer?
In most real estate transactions, the appraisal is ordered by the lender. While the 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 buyer is entitled to a copy of the report – it’s usually bundled with all the other closing documents – but is not allowed to use the report for any other purpose without permission from the lender.
This rule doesn’t apply when a home owner engages an appraiser directly. In these situations, the appraiser may state how the appraisal can be used; for PMI removal, or estate planning or tax challenges, for example. If not stated otherwise, the home owner can do whatever they want with the appraisal.
- I want to get more for my house. Where should I spend money renovating?
This really depends on where the home is. For example, if you’re in a neigborhood of small to medium priced homes, a media room may not be something people in that price range want
No matter where you go, however, renovating a kitchen is almost always a safe investment. 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, yielding 85%. On the contrary, work that may not add value would be painting just for the sake of redecorating.