What is an appraisal?
The process of producing an appraisal deals with an investigation which leads to an opinion of value. There are three “common approaches to value” which assists the appraiser come to this opinion or estimate. One of the three is the Cost Approach – which is what it would cost to replace the improvements, minus physical deterioration and other factors, plus the land value. The Sales Comparison Approach deals with searching for comparable properties in the vicinity and discerning value based on comparing those prior sales to the property being investigated. Generally speaking, the Sales Comparison Approach is the most definite indicator of market value of a home. One of the least common approaches in appraising homes is the Income Approach, which is commonly used to determine the market value of a property based on what an investor would pay based on the capital produced by the building.
Describe what an appraiser does
An appraiser produces a professional, unbiased determination of market value, often in the context of a real estate purchase. Appraisers present their findings in appraisal reports.
Why would someone need a real estate appraisal?
There are many reasons to obtain an appraisal with the usual reason being real estate and mortgage transactions. Some other reasons for getting an appraisal report include:
- If you are applying for a loan.
- To reduce your property taxes.
- To help a homeowner realize if they owe less than 80% of their home’s value and remove insurance.
- To challenge inflated property taxes.
- If you need to settle an estate.
- To offer you a leg-up when purchasing a home.
- To figure out a reasonable price when selling real estate.
- To defend your rights if your property is being taken by means of eminent domain in a condemnation case.
- Government agencies such as the IRS require an appraisal on every home.
- If you are ever involved in a civil case.
If you need more information about the appraisal process, please click here
Is an appraisal the same as a home inspection?
Home inspectors do not come to an opinion of value and are not appraisers. A third-party home inspector will evaluate the structure of the home, from the roof to the foundation. Generally, a home inspection report will explain the amenities and the necessities of the house: air conditioning (weather permitting), electrical systems, 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 other visible structures.
Is an appraisal the same as a comparative market analysis(CMA)?
Simply put, it’s apples and oranges. The CMA uses market trends to generate most of their business. The appraisal relies on specific valid comparable sales. Location and construction values are also important in an appraisal. All a CMA does is generate a “ball park figure.” 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 be trained in technical valuation concepts or even have a handle on market trends. The appraisal is produce by a licensed, certified professional who makes a living out of valuing properties. Likewise, the agent has something at stake since they get a commission based on 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?
The main point of an appraisal document is to provide a value opinion, and depending on the scope of the report, you’ll usually see the following:
- The client and other intended users.
- The intended use of the report.
- The appraisal’s purpose.
- The type of value reported 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!)
- Pertinent property characteristics, including: location, physical characteristics, legal attributes, economic attributes, the property rights in question, and non-real estate items included in the appraisal, such as personal property, items that are more or less permanently installed and even intangible items.
- 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.
- The scope of work used to complete the job.
After completing the appraisal, how can I have certainty that the value indicated is trustworthy?
In communicating an appraisal report, each appraiser must ensure the following:
- That the information analysis implemented in the appraisal was appropriate.
- That substantial errors of omission or commission were not committed individually or collectively.
- That appraisal services were delivered in a careful and conscientious fashion.
- That a credible, supportable appraisal report was communicated.
There are intense education and practical experience requirements that must be adhered to in order to get an appraisal license in New York. In addition, appraisers must obey a meticulous industry code of ethics and comply with national standards of practice for real estate appraisal. The guidelines for working up an appraisal and reporting its results are guaranteed by enforcement of the Uniform Standards of Professional Appraisal Practice (USPAP).
(List of questions) Licensing and certification takes coursework, tests and real world experience. Once licensed, he or she is required to complete continuing education courses so that the license doesn’t expire. To see the specific requirements for any state click here.
Who do appraisers work for?
Mortgage lenders are an appraiser’s most likely client, requiring their services to ensure real estate involved in a mortgage transaction is enough to cover a loan balance in the case of default. Attorneys and CPAs also retain the services of appraisers for divorce and estate settlements.
Where does New York Appraisers get the data used to estimate values in Saratoga County or other areas?
One of the main things an appraiser does is to collect property data. Data can be described as either Specific or General. Specific data is taken from the home itself; Location, condition, amenities, size and other specifics are documented by the appraiser during an inspection.
General data is received from a variety of places. To look up recently sold homes to be used as “comps”, we typically go to the local Multiple Listing Service. To verify actual sales prices, we research items in the assessor’s office and other public documents that are usually online nowadays. Appraisers often have 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 InterFlood service.
And most importantly, the appraiser assimilates general data from his or her collective knowledge gained from creating appraisals for other properties in the same market.
How can a licensed appraiser help me?
If you’re making some sort of financial decision and the value of your home is relevant, you’ll want an appraisal. For those selling a home, you’ll want to figure out a 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 commissioning an independent appraisal. For parties settling an estate or divorce, an appraisal from New York Appraisers is the best way to ensure assets are divided evenly. A home is often the single, largest financial asset anybody owns. Knowing its true value is essential to making wise financial decisions.
My mortgage statement has an item on it for PMI? Can I get rid of that?
PMI is short for for Private Mortgage Insurance. This additional plan takes care of the lender in case a borrower is unable to pay on the loan and the value of the home is less 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 savings from dropping the PMI required when you got your mortgage will make up for the cost of the appraisal in no time. New York Appraisers has years of experience with real estate value trends in Saratoga Springs and Saratoga County. Contact us today.
Does the appraiser need anything from the homeowner in advance?
The first step in most appraisals is the home 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 amenities. The best thing you can do to help is make sure the appraiser has easy access to the exterior of the house (gates aren’t locked, etc). Trim any bushes and move any items that would get in our way while we measure the structure. On the inside, make sure the appraiser can get to items like furnaces and water heaters.
The following items, if available, will help your appraiser to provide a more accurate appraisal in a shorter period of time:
- A plot plan or survey of the house and land (if readily available).
- Any documents, such as a title policy with information on encroachments or easements encroachments or easements.
- Home inspection reports, or other recent reports for termites, EIFS (synthetic stucco) wall systems, your septic system and wells.
- Locate copies of the current listing agreement, broker’s data sheet and, in the event of a pending sale.
- A list of “proposed” improvements if the property is to be appraised “as complete”.
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.”
Who has rights to the appraisal report?
In most real estate transactions, the appraisal is ordered by the lender. Even though it’s the buyer that eventually pays for the report, the lender is the intended user. The buyer is certainly entitled to a copy of the appraisal – it’s usually included 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 the purpose of the appraisal; for PMI removal, or estate planning or tax challenges, for example. If not stated otherwise, the home owner can use the appraisal for any purpose.
Are some home improvements more worthwhile than others?
The added value of a particular amenity truly depends on the local market. For example, while quality appliances are attractive, a $7000 built-in refrigerator won’t pay off in a neighborhood of moderately priced homes
As a rule, the most value returned from renovating a home comes in the kitchen. One recent study revealed that putting $20,000 into a kitchen remodel would add about $17,500 to the value of the home – or about an 88% return on investment. Bathrooms are right up there with kitchens, yielding 85%. On the contrary, something that may not increase your value would be painting just for the sake of redecorating.