What does “appraisal” really mean?
Basically, an appraiser performs an estimation that produces an opinion of value. This opinion or estimate is arrived at through a formal process that commonly utilizes three “common approaches to value”.
- The cost approach (the buyer will not pay more for a property than it would cost to build an equivalent).
- The sales comparison approach (comparing a property’s characteristics with those of comparable properties that have recently sold in similar transactions).
- The income approach (similar to the methods used for financial valuation, securities analysis or bond pricing).
What does an appraiser do?
An appraiser offers a fair and credible opinion of market value, often in the context of a real estate exchange. Appraisers present their expert investigation in appraisal reports.
Why would I need an appraisal?
There are many reasons to purchase an appraisal, but the most common reason being real estate and mortgage transactions. A few other reasons for ordering an appraisal report include:
- To obtain a loan.
- If you would like to reduce your property tax burden.
- To build a case for a homeowner’s equity and remove insurance.
- To fight high property taxes.
- If you need to settle an estate.
- To give you an edge when purchasing real estate.
- To determine an honest property value when selling your home.
- To ensure parties are provided just compensation in eminient domain cases.
- Because a government agency such as the IRS requires it.
- It’s possible you could be involved in a lawsuit – an appraisal will help.
How is an appraisal different than a home inspection?
Home inspectors do not generate an opinion of value and are not appraisers. The point of a home inspection is to evaluate the structure of the home from bottom to attic. The average home inspector’s report includes an evaluation of the integrity of the house’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.
What is the difference between an appraisal and a comparative market analysis (CMA)?
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
What can I expect to see in my appraisal report?
The main purpose of an appraisal report is to let the reader know the value of the real estate in question, and depending on the scope of the report, you’ll usually see the following:
- The client and whose purposes the appraisal is to serve.
- The intended use of the appraisal.
- The reason for the assignment.
- Precisely what “value” attribute is being reported and what that value means.
- The effective date of the appraisal.
- Relevant property attributes, including: location, physical characteristics, legal attributes, economic factors, the real property interest valued, and non-real estate items included in the valuation, such as personal property, permanent equipment installations and even intangible considerations.
- All 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 considered to complete the appraisal.
Once the appraisal has been delivered, how can I have assurance that the value indicated is trustworthy?
- In the documentation of an appraisal, each appraiser must make sure of the following:
- That the information analysis contained in the appraisal was appropriate.
- That critical errors of omission or commission were not committed individually or collectively.
- That appraisal services were done in a careful and cognizant manner.
- The final appraisal report was clear, legitimate and defensible.
To become a state licensed appraiser, there are both education and job experience requirements must be logged – all with the objective of being able to render unbiased value opinions. Likewise, appraisers must obey a stringent industry code of ethics and respect national standards of practice for real estate appraisal. The tenets for developing an appraisal and reporting its results are insured by enforcement of the Uniform Standards of Professional Appraisal Practice (USPAP).
Regulations regarding licensing and certification of Real Estate Appraisers are different from state to state. However, licensing and certification typically translates to many hours of classroom study, tests and practical experience. Once an appraiser is licensed, he or she must then engage in continuing education courses so that the license doesn’t expire.
How do I get ready for the appraiser?
We begin with an inspection of the property. During an inspection, the appraiser will come to your home and measure it, determine the layout, confirm all aspects of the home’s general condition, and take several photos of your house for inclusion in the report.
Before the inspection:
- Be sure the appraiser has easy access to the exterior of the house (gates aren’t locked, etc).
- Trim any shrubs and relocate any items that would make it difficult to measure the structure.
- Make sure the appraiser can get to items like furnaces and water heaters.
You can make things go faster and improve the quality of the appraisal report by having the following things on hand:
- Records on the latest purchase of the property in the last three years.
- Title policy that describes encroachments or easements.
- Any inspection reports, or other recent reports for termites, EIFS (synthetic stucco) wall systems, septic systems and your well.
- Locate copies of the current listing agreement, broker’s data sheet and, if the sale is “pending”, the purchase agreement.
- Most recent real estate tax bill and or legal description of the property.