FAQ

The method of performing an appraisal consists of an evaluation which forms an opinion of value. There are three “common approaches to value” which assists the appraiser conclude this opinion or valuation. The Cost Approach is one of the approaches that appraisers use to find value; it involves discerning what the improvements would cost minus physical degradation, plus the land value. Another of the methods is the Sales Comparison Approach – which involves discovering a comparable analysis to other similar properties within a close vicinity which have recently sold. The Sales Comparison Approach is commonly the most accurate and clearest indicator of a liklely sales price for a home. 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 money produced by the property.

An appraiser provides a professional, unbiased determination of market value, to be used in making real estate transactions. Appraisers document their expert analysis in appraisal reports.

There are a lot of reasons to purchase an appraisal from Definitive Valuations with the most common reason being real estate and mortgage transactions. Some other reasons for purchasing an appraisal report include:

+To receive a loan.

+If you would like to reduce your property tax obligations.

+To help a homeowner realize if they owe less than 80% of their home’s value and remove PMI.

+To contest improperly assessed property taxes.

+To deal with an estate.

+To give you an edge when purchasing a home.

+To figure out an honest property value when putting your home on the market.

+To protect your rights if your property is being taken by means of eminent domain in a condemnation case.

+Government agencies such as the IRS need an appraisal on every house.

+It’s possible you could have to deal with being in a lawsuit – an appraisal will help

The appraiser is not a home inspector and he or she does not do a comprehensive home inspection. A third-party home inspector will evaluate the structure of the property, from the roof to the bottom. Commonly, a home inspection report will explain the amenities and the necessities of the house: air conditioning (weather permitting), electrical services, the condition of the heating system, the plumbing; then the structural capacity of the home such as the attic, visible insulation, walls, floors, ceilings, windows, then the foundation, basement and visible structures.

Simply, they share nothing in common. The CMA depends on indistinct trends in the market. Appraisals use similar sales which are verifiable resources. Also, the appraisal looks at other factors like condition, location and replacement prices. The CMA will provide a non-specific figure. An appraisal delivers a defensible and carefully documented opinion of value.

But the biggest difference is the person doing the report. Real estate agents, who may not have a complete understanding of valuation methods or the entire market, generate CMA’s. A certified, state licensed professional who has formed a career on valuing properties in and around Madison County is behind the appraisal. Likewise, the agent has a vested interest in the property’s selling price whereas the appraiser is bound by a code of ethics to accept a previously agreed upon sum for assignments, regardless of their value conclusion.

The main purpose of an appraisal report is to give a value opinion, and depending on the scope of the report, you’ll usually see the following:

• Who engaged the appraiser and other intended users.

• The intended use of the appraisal.

• The appraisal’s purpose.

• Precisely what “value” attribute is being reported and what that value means.

• 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 attributes, legal attributes, economic attributes, the property rights valued, and non-real estate items included in the valuation, such as personal property, permanent equipment installations and even intangible factors.

• All known easements, restrictions, encumbrances, leases, reservations, covenants, contracts, declarations, special assessments, ordinances, and other items of a similar nature.

• Division of interest, such as fractional interest, physical segment and partial holding.

• What was included in the process of completing the job.

For a more comprehensive view of what goes into an appraisal report click here: Sample Appraisal Report

In the documentation of an appraisal, each appraiser must ensure the following:

• That the information analysis contained in the appraisal was appropriate.

• Whether individually or collectively, there were no significant errors contained in the appraisal, nor any relevant details left out.

• That appraisal services were not conducted in a careless or negligent manner.

• That a solid, defensible appraisal report was imparted.

There are rigorous classroom and real world experience requirements that must be adhered to in order to achieve the title of “licensed appraiser” in Alabama. Plus, appraisers must abide by a strict industry code of ethics and respect national standards of practice for real estate appraisal. The tenets for working up an appraisal and reporting its results are insured by enforcement of the Uniform Standards of Professional Appraisal Practice (USPAP).

Licensing and certification requires classroom study, tests and real world experience. Once licensed, he/she must then complete continuing education courses so the license stays current. To see the specific requirements for any state click here.

Typically, appraisers are hired by mortgage lenders to render a value opinion on a home involved in a loan transaction – to make sure the real estate is truly adequate collateral for the loan. Appraisers also provide opinions for legal settlements, tax matters and investment decisions.

One of the most important activities of an appraiser is to assimilate property data. Data can be described as either Specific or General. Specific data is collected from the property itself; Location, condition, amenities, size and other specifics are noted by the appraiser while on site.

General data is received from a variety of sources. To find out about recently sold homes to be used as “comps”, we typically go to the local Multiple Listing Service. To double-check actual sales prices, we look at tax records and other public documents that are usually online nowadays. Flood zone data is retrieved from FEMA data outlets, such as a la mode’s InterFlood product.

And most importantly, the appraiser assembles general data from his or her past experience in creating appraisals for other houses in the same market.

Any time the value of your home or other real property is being used to make a significant financial decision, an appraisal helps. For those selling a home, you’ll want to determine the price that gets you the most profit but doesn’t leave your home on the market too long; an appraisal can help with that. When buying, you can avoid overpaying by getting an independent appraisal. For those settling an estate or divorce, an appraisal from Definitive Valuations is the best way to ensure assets are split up properly. Simply put, a home is often the single, largest financial asset anybody owns. Don’t make decisions in the dark with a professional appraisal.

PMI stands for Private Mortgage Insurance. This supplementary plan takes care of the lender if a borrower is unable to pay on the loan and the value of the home 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.

The first step in most appraisals is the property inspection. 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. 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 relocate any items that would make it difficult to measure the structure. On the inside, make sure we can easily access items like furnaces and water heaters.

To help speed things along as well as ensure a more accurate report, try if possible to have the following items:

• Records on the latest purchase of the property in the last three years.

• A list of any personal property that will be left behind and sold with the home, such as an oven, or a washer and dryer, if applicable.

• Home inspection reports, or other recent reports for termites, EIFS (synthetic stucco) wall systems, septic systems and wells.

• Locate copies of the current listing agreement, broker’s data sheet and, in the event of a pending sale.

• A bill for your most recent real estate taxes which should also contain a legal description of the property.

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.”

For mortgage transactions, the lender requests the appraisal, either directly or through a third party. 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 certainly entitled to a copy of the report – it’s usually included with all the other closing documents – but is not entitled to use the report for any other purpose without permission from the lender.

This rule doesn’t apply when a home owner hires an appraiser directly. In these cases, the appraiser may state 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.

A home’s location – what city it is in and even what part of that city – is key to this popular question. For example, adding a central air conditioner in to a home in the South may add significant value, while putting one in a home near the Pacific Northwest might not have much impact.

As a rule, the best ROI 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%. On the contrary, work that may not add value would be painting just for the sake of redecorating.