An appraisal report is estimation allowing the appraiser to come to an opinion of value.
There are three "common approaches to value" which help the appraiser arrive at this opinion or valuation.
The Cost Approach is one of the processes that real estate appraisers use to find value. It involves figuring what the improvements would cost without physical deterioration and adding the land value.
The Sales Comparison Approach involves finding similar properties in the vicinity and finding value based on making a comparison of those homes to the property being investigated.
Being the most commonly used approach, the Sales Comparison Approach tends to be the most precise and best indicator of worth for a home.
One of the least common approaches in appraising residential homes is the Income Approach, which is generally used to find the value of a property based on what an investor would pay based on income produced by the property.
An appraiser provides a professional, experienced and unbiased Opinion of Market Value, to be used in real estate transactions and for making real estate decisions.
Appraisers create a report that displays their investigation of the property.
There are many reasons to obtain an appraisal with the most common reason being real estate and mortgage transactions.
A few other reasons for obtaining an appraisal include:
If you are applying for a loan.
If you would like to reduce your property tax obligations.
To challenge inflated property taxes.
If you need to settle an estate.
To provide you an edge when purchasing real estate.
To determine a reasonable price when selling real estate.
To protect your rights in a condemnation case.
Because an official agency such as the IRS requires it.
It's possible you could have to deal with being in a lawsuit - an appraisal will definitely help.
Appraisers do not do complete residential property inspections and are not home inspectors.
The purpose of a home inspection is to evaluate the structure of the home from bottom to rooftop.
The general home inspector's report will include an evaluation of the integrity of the home's heating systems, central air conditioning system (temperature permitting), interior plumbing and electrical systems; the roof, attic, and accessible insulation; walls, ceilings, floors, windows and doors; the foundation, basement, and visible structure.
Simply put, the difference is night and day.
What the CMA relies upon are ill-defined trends.
Appraisals use comparable sales which are valid resources.
Also, the appraisal looks at other factors like quality, condition, amenities, living area and building costs.
All a CMA does is generate a "ball park figure."
Delivering a defensible and careful analysis, an appraisal will give a solid clear opinion of value.
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. The appraisal is created by a certified professional who has made a career out of only valuing properties. Further, and most importantly, the appraiser is an independent voice, with no vested interest in the value of a property unlike the real estate agent, whose commission and income is tied to the value of the home.
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 attributes, physical attributes, legal attributes, economic attributes, the real property interest valued, and non-real estate items included, such as personal property, including trade fixtures and 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 assignment.
In communicating an appraisal report, each appraiser must ensure the following:
That the information analysis utilized in the appraisal was appropriate.
That significant errors of omission or commission were not committed individually or collectively.
That appraisal services were not rendered in a careless or negligent manner.
That 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. To become licensed or certified, appraisers must fulfill rigorous 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).
Regulations regarding licensing and certification of Real Estate Appraisers vary from state to state. In Minnesota licensing and certification is associated with many hours of coursework, multiple testing and years of practical experience. Once an appraiser is certified, she is required to take annual continuing education courses in order to keep the license current.
Typically, appraisers are employed by lenders to estimate the value of real estate involved in a loan transaction. Appraisers also provide opinions in litigation cases, tax matters and investment decisions.
Gathering data is one of the primary roles of an appraiser. Data can be divided into Specific and General. Specific data is gathered from the home itself. Location, condition, quality, amenities, size and other specific data are gathered by the appraiser during an inspection.
General data is gathered from a number of sources. Local Multiple Listing Services (MLS) provide data on recently sold homes that might be used as comparables. State, county and tax records along with other public documents verify actual sale prices in a market. Flood zone data is gathered from FEMA data outlets. And most importantly, the appraiser gathers general data from her or his past experience in creating appraisals for other properties 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 is often essential. If you're selling your home, an appraisal helps you set the most appropriate value. If you're buying, it ensures that you don't overpay. If you're engaged in an estate settlement or divorce, it ensures that property is divided fairly. A home is often the single, largest financial asset anybody owns. Knowing its true value means you can the right financial decisions.
PMI stands for Private Mortgage Insurance. It is intended to insure a lender against any loss on properties purchased with a down-payment of less than 20%. Once equity in the home reaches 20% you can eliminate the PMI and start saving immediately.
The first step in most appraisals is the property inspection. During this process, the appraiser will come to your home and measure it, determine the layout of the rooms inside, confirm all aspects of the home's general condition, and take several photos (exterior and interior) of your house for inclusion in the report. The best thing you can do to help is make sure the appraiser has easy access to the exterior of the house and all outbuildings. Moving any items that would make it difficult to measure the structure is very helpful. On the inside, make sure that the appraiser can easily access items like the furnace, water heater and crawl space and be sure smoke and carbon monoxide detectors are installed.
The following Items, if available, will help your appraiser to provide a more accurate appraisal:
A list of updates and when they were made
A survey of the house and property.
A deed or title report showing the legal description.
A copy of the original plans.
Market Value or fair market value is the most probable price that a property should bring (will sell for) in a competitive and open market under all conditions requisite to a fair sale. The buyer and seller should be acting prudently, knowledgeably and with the assumption that 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: (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 U.S. dollars or in terms of financial arrangements comparable thereto; and (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.
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 - usually included with all of the other closing documents - but is not entitled to use the report for any other purpose without permission from the lender and the appraiser.
The exception to this rule is when a homeowner engages an appraiser directly. In these cases, the appraiser may stipulate how the appraisal can be used; for PMI removal, estate planning or tax challenges, for example. If not stipulated otherwise, the homeowner can use the appraisal for any purpose.
The answer to this is different depending upon the location of the home. Different markets value amenities differently. Adding a central air conditioner in Houston, Texas may add significant value, while putting one in a home located in Buffalo, New York might not have much impact.
As a rule, the most value returned 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%.
Wild River Appraisals is always ready to answer any inquiries you might have about appraisals or real estate in East Central Minnesota.
Contact us today to learn how we can help you with your specific valuation needs.