Frequently Asked Questions:
is an appraisal?
obtain a loan.
does an appraiser do?
would a person need a home appraisal?
is the difference between an appraisal and a home inspection?
is the difference between an Appraisal and a Comparative Market
does the appraisal report contain?
completing the report, what assurance is there that the value
indicated is valid?
are appraisers certified?
do appraisers work for?
does an appraiser get the information used to estimate value?
do I need a professional appraisal?
exactly is PMI and how can I get rid of it?
do I get ready for the appraiser?
is ''Market Value?''
Actually Owns the Appraisal Report?
home renovations add the most to the price?
What is an appraisal? Back to top
An appraisal is a thought process leading to an opinion of
value. This opinion or estimate is arrived at through a formal
process that typically uses the three ''common approaches
to value''. They are the Cost Approach - which is what it
would cost to replace the improvements, less physical deterioration
and other factors, plus the land value. There is the Sales
Comparison Approach - which involves making a comparison to
other similar, nearby properties which have recently sold.
The Sales Comparison Approach is normally the most accurate
and best indicator of value for a residential property. 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 income produced by
the property. For a more detailed description of the appraisal
process click here:
is an appraisal?
What does an appraiser do? Back
An appraiser provides a professional, unbiased opinion of
market value, to be used in making real estate decisions.
Appraisers present their formal analysis in appraisal reports.
Why would a person need a home appraisal? Back to top
There are many reasons to obtain an appraisal with the most
common reason being real estate and mortgage transactions.
Other reasons for ordering an appraisal include:
lower your tax burden.
establish the replacement cost of insurance.
contest high property taxes.
settle an estate.
provide a negotiating tool when purchasing real estate.
determine a reasonable price when selling real estate.
protect your rights in a condemnation case.
a government agency such as the IRS requires it.
you are involved in a lawsuit.
For more details on when you might need an appraisal click here:
When to get an Appraisal
What is the difference between an appraisal
and a home inspection? Back to top
The appraiser is not a home inspector nor does he/she do a complete
home inspection. An 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 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)? Back to top
Simply put, the difference is night and day. 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.
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. The appraisal
is created by a licensed, certified professional 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 real estate agent, whose income is tied to
the value of the home.
What does the appraisal report contain? Back to top
Each report must reflect a credible estimate of value and must
identify the following:
client and other intended users.
intended use of the report.
purpose of the assignment.
type of value reported and the definition of the value reported.
effective date of the appraiser's opinions and conclusions.
property characteristics, including location attributes, physical
attributes, legal attributes, economic attributes, the real
property interest valued, and Non real estate items included
in the appraisal, such as personal property, including trade
fixtures and intangible items.
known: easements, restrictions, encumbrances, leases, reservations,
covenants, contracts, declarations, special assessments, ordinances,
and other items of a similar nature.
of interest, such as fractional interest, physical segment
and partial holding.
scope of work used to complete the assignment.
For a more detailed look at what goes into an appraisal report
click here: Sample Appraisal
After completing the report, what assurance
is there that the value indicated is valid? Back to top
In communicating an appraisal report, each appraiser must ensure
the information analysis utilized in the appraisal was appropriate.
significant errors of omission or commission were not committed
individually or collectively.
appraisal services were not rendered in a careless or negligent
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).
How are appraisers certified? Back to top
Regulations regarding licensing and certification of Real Estate
Appraisers vary from state to state. However, licensing and
certification is most often associated with many hours of coursework,
tests and practical experience. Once an appraiser is licensed,
he or she is required to take continuing education courses in
order to keep the license current. To see the specific requirements
for any state click here.
Who do appraisers work for? Back to top
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
Where does an appraiser get the information
used to estimate value? Back to top
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
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 outlets, such as a la mode's InterFlood product.
And most importantly, the appraiser gathers general data from
his or her past experience in creating appraisals for other
properties in the same market.
Why do I need a professional appraisal? Back to top
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're buying, it makes sure
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.
What exactly is PMI and how can I get rid of
it? Back to top
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. For a detailed discussion
of PMI and how to get rid of it click here: What
is PMI and how to get rid of it
How do I get ready for the appraiser? Back to top
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 several photos 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
survey of the house and property.
deed or title report showing the legal description.
recent tax bill.
list of personal property to be sold with the house if applicable.
copy of the original plans.
What is ''Market Value?'' Back to top
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.
Who Actually Owns the Appraisal Report? Back to top
In most real estate transactions, the appraisal is ordered by
the lender. While the home 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 home buyer is
entitled to a copy of the report - it's 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 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 challenges, for example. If not stipulated otherwise, the
home owner can use the appraisal for any purpose.
Which home renovations add the most to
the price? Back to top
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