There are many reasons to obtain an appraisal with the most common reason being to obtain a mortgage loan. Other reasons for ordering an appraisal include:
Zillow and Trulia are just a few of the popular online consumer real estate sites that provide an estimate of the value of your home. These are just estimations, done by a computer. It is not possible for these computers to take into account all the particulars surrounding your specific house, the market that is resides in, and all the other factors a licensed appraiser reviews. We encourage everyone to take these value estimates with a grain of salt. Think about it, if these online services were accurate, there would be no need for the nearly 100,000 licensed appraisers across the United States.
The answer to this varies depending upon the location of the home. Different markets value amenities differently. As a rule, the most value returned from renovating a home comes in first the kitchen and then the master bathroom.
In most real estate transactions, the appraisal is ordered by the lender. While the home buyer pays for the report as part of the loan process, the lender retains the right to use the report or any information contained within. The home buyer is entitled to a copy of the report – it is required to be 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.
The exception to this rule is when a home owner engages an appraiser directly. In these cases, the appraiser may stipulate how the appraisal can be used; for PMI removal, or estate planning or tax appeals, for example. If not stipulated otherwise, the home owner can use the appraisal for any purpose. Either way, the appraiser can not disclose the report to another outside party with the consent of the client that ordered it.
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, each acting prudently, 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: (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. Keep in mind, the appraiser does not establish market value, the appraiser reports market value.
The first step in most appraisals is the home 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 numerous photos of both the outside and inside 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. Trim any bushes and move any items that would make it difficult to measure the structure. On the inside, make sure that the appraiser can easily access 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:
PMI stands for Private Mortgage Insurance. It insures a lender against loss on homes 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. To remove PMI, please contact the mortgage company that services your loan and ask them to provide you with what would be needed. Every mortgage company is different so ask them to send it to you in writing. Only then should you have your home appraised to determine if there is enough equity to remove PMI.
Anytime the value of your home or other real property is being used to make a significant financial decision, an appraisal helps. If you’re selling your home, an appraisal helps you set the most appropriate value. If you are buying, it makes sure you do not overpay. If you are 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.
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, 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. Tax records and other public documents verify actual sales prices in a market. Flood zone data is gathered from FEMA data sources. And most importantly, the appraiser gathers general data from his or her past experience in creating appraisals for other properties in the same market.
Regulations regarding licensing and certification of real estate Appraisers vary from state to state. However, licensing and certification is most often associated with having a degree, over 290 hours of coursework, numerous tests, and years of practical experience. Once an appraiser is licensed, they are required to take continuing education courses in order to keep the license current.
In developing and communicating an appraisal report, each appraiser must ensure the following:
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) written by The Appraisal Foundation.
Each report must reflect a credible estimate of value and must identify the following:
The CMA relies on vague market trends. The appraisal relies on specific, verifiable comparable sales. In addition, the appraisal looks at other factors like condition, location, and construction costs. A CMA delivers a "ball park figure." An appraisal delivers a defensible and carefully documented opinion of value.
The biggest difference is the person creating the report. Many times a CMA is created by a Realtor who may or may not have a true grasp of the market or valuation concepts. The appraisal is created by a licensed professional appraiser who has made a career out of valuing properties. Further, the appraiser is an independent voice, with no vested interest in the value of a home, unlike the Realtor, whose income is tied to the perceived value of the home.
The appraiser is not a home inspector nor do they do a complete home inspection. A home inspection is a third-party evaluation of the accessible structure and mechanical systems of a house, from the roof to the foundation. The standard home inspector’s report will include an evaluation of the condition of the home’s heating system, central air conditioning system (temperature permitting), interior plumbing, electrical systems, roof, attic, visible insulation, walls, ceilings, floors, windows, doors, foundation, basement, and visible structure.