|
|
|
Why would a person need a home appraisal? What is the difference between an appraisal and a home inspection? What is the difference between an Appraisal and a Comparative Market Analysis (CMA)? What does the appraisal report contain? After completing the report, what assurance is there that the value indicated is valid? Where does an appraiser get the information used to estimate value? Why do I need a professional appraisal? What exactly is PMI and how can I get rid of it? How do I get ready for the appraiser? Who Actually Owns the Appraisal Report? Which home renovations add the most to the price? How Do I Prepare for an Appraisal? How Do I Read an Appraisal Inspection Report? How can I get a copy of the appraisal? What is a Comparable or "comp ? ARTICLES Man faces 10 years in real estate scheme Bailout, Take II: What the Feds Do Next Lawmakers try to revise bailout, FDIC hike seen HVCC implementation postponed, yet momentum continues LA Times Article Regarding Loan Fraud HVCC: The Cure Is Worse Than The Disease Bank Regulators Elevate Preemption Threat of Home Valuation Code of Conduct US Government seizes control of mortgage giants Fannie Mae and Freddie Mac Appraisal Institute Calls for Withdrawal of HUD’s Proposed RESPA Rule Mortgage rates drop after Fannie, Freddie takeover
Q: What is an appraisal? A: A home purchase is the largest, single investment most people will ever make. Whether it's a primary residence, a second vacation home or an investment, the purchase of real property is a complex financial transaction that requires multiple parties to pull it all off. Most of the people involved are very familiar. The Realtor is the most common face of the transaction. The mortgage company provides the financial capital necessary to fund the transaction. The title company ensures that all aspects of the transaction are completed and that a clear title passes from the seller to the buyer. So who makes sure the value of the property is in line with the amount being paid? There are too many people exposed in the real estate process to let such a transaction proceed without ensuring that the value of the property is commensurate with the amount being paid. This is where the appraisal comes in. An appraisal is an unbiased estimate of what a buyer might expect to pay - or a seller receives - for a parcel of real estate, where both buyer and seller are informed parties. To be an informed party, most people turn to a licensed, certified, professional appraiser to provide them with the most accurate estimate of the true value of their property. The Inspection Once the site has been inspected, an appraiser uses two or three approaches to determining the value of real property: a cost approach, a sales comparison and, in the case of a rental property, an income approach. Cost Approach Sales Comparison Using knowledge of the value of certain items such as square footage, extra bathrooms, hardwood floors, fireplaces or view lots (just to name a few), the appraiser adjusts the comparable properties to more accurately portray the subject property. For example, if the comparable property has a fireplace and the subject does not, the appraiser may deduct the value of a fireplace from the sales price of the comparable home. If the subject property has an extra half-bathroom and the comparable does not, the appraiser might add a certain amount to the comparable property. In the case of income producing properties - rental houses for example - the appraiser may use a third approach to valuing the property. In this case, the amount of income the property produces is used to arrive at the current value of those revenues over the foreseeable future. Reconciliation 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. 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:
What is the difference between an appraisal and a home inspection? 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. To top What is the difference between an Appraisal and a Comparative Market Analysis (CMA)? 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. To top
Each report must reflect a credible estimate of value and must identify the following:
After completing the report, what assurance is there that the value indicated is valid? In communicating an appraisal report, each appraiser must ensure the following:
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). 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. 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 decisions. 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 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 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. 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. 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 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 time:
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. 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 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 challenges, for example. If not stipulated otherwise, the home owner can use the appraisal for any purpose. Also see: "How do I get a copy of my appraisal report" 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 85%. To top A: Appraisal is a profession, and appraisers are professionals. In our field as with any profession we are bound by ethical considerations.
Appraisers may also have fiduciary obligations to third parties, such as homeowners, both buyers and sellers, or others. Those third parties normally are spelled out in the appraisal assignment itself. An appraiser's fiduciary duty is limited to those third parties who the appraiser knows, based on the scope of work or other written parameters of the assignment. There are ethical rules that have nothing to do with clients and others. Appraisers must keep their work files for a minimum of five years. We only perform to the highest ethical standards possible. We don't do assignments on contingency fees. That is, we don't agree to do an appraisal report and get paid only if the loan closes. We don't do assignments on percentage fees. That is probably the appraisal profession’s biggest no-no, because it would tend to make appraisers inflate the value of homes or properties to increase their paycheck. We don't do that. Other unethical practices may be defined by state law or professional societies to which an appraiser belongs. The Uniform Standards of Professional Appraisal Practice (USPAP) also defines as unethical the acceptance of an assignment that is contingent on "the reporting of a pre-determined result (e.g., opinion of value)," "a direction in assignment results that favors the cause of the client," "the amount of a value opinion," and other things. This means you can be assured we are working to objectively determine the home or property value. You can be assured of 100 percent ethical, professional service.
To top Q: How Do I Prepare for an Appraisal? A: For homeowners, a real estate appraisal is the linchpin to buying or selling their home. It allows the property transactions to occur among the buyer, seller, real estate agent and mortgage lender. Before an Appraiser arrives, there are a few things you should know. By law, an appraiser must be state licensed to perform appraisals prepared for federally related transactions. Also by law, you are entitled to receive a copy of the completed appraisal report from your lender. To facilitate the appraisal process, it's beneficial to have these documents ready for the appraiser:
Here are some other suggestions:
Q: How Do I Read an Appraisal Inspection Report? A: When interviewing a home inspector, ask the inspector what type of report format he or she provides. There are many styles of reports used by property inspectors, including the checklist, computer generated using inspection programs, and the narrative style. Some reports are delivered on site and some may take as long as 4 - 6 days for delivery. All reporting systems have pros and cons. The most important issue with an inspection report is the descriptions given for each item or component. A report that indicates the condition as "Good", "Fair" or "Poor" without a detailed explanation is vague and can be easily misinterpreted. An example of a vague condition would be: Kitchen Sink: Condition - Good, Fair, or Poor. None of these descriptions gives the homeowner an idea what is wrong. Does the sink have a cosmetic problem? Does the home have a plumbing problem? A good report should supply you with descriptive information on the condition of the site and home. An example of a descriptive condition is: Kitchen sink: Condition - Minor wear, heavy wear, damaged, rust stains, or chips in enamel finish. Recommend sealing sink at counter top. As you can see, this narrative description includes a recommendation for repair. Narrative reports without recommendations for repairing deficient items may be difficult to comprehend, should your knowledge of construction be limited. Take the time and become familiar with your report. Should the report have a legend, key, symbols or icons, read and understand them thoroughly. The more information provided about the site and home, the easier to understand the overall condition. At the end of the inspection your inspector may provide a summary with a question and answer period. Use this opportunity to ask questions regarding terms or conditions that you may not be familiar with. A good inspector should be able to explain the answers to your questions. If for some reason a question cannot be answered at the time of the inspection, the inspector should research the question and obtain the answer for you. For instance, if the inspector's report states that the concrete foundation has common cracks, be sure to ask, "Why are they common?" The answer you should receive will be along these lines: common cracks are usually due to normal concrete curing and or shrinkage. The inspector's knowledge and experience is how the size and characteristics of the cracking is determined. We recommend that you accompany your inspector through the entire inspection if possible. This helps you to understand the condition of the home and the details of the report. Read the report completely and understand the condition of the home you are about to purchase. After all, it is most likely one of the largest investments you will ever make. To top Q: How can I get a copy of the appraisal? A: Although you may have paid a fee for your appraisal (even if you paid the appraiser directly) the law prohibits the appraiser from providing you with a copy of the appraisal without the consent of the lender. However, if you have paid a fee for the appraisal, you are entitled to a copy of it from your lender.
Appraisers receive and accept many appraisal assignments from clients specifically instructing them to collect the appraisal fee at the door (or “C.O.D.”) from the borrower. It is considered a common and generally accepted practice for the appraiser to collect this payment directly from the borrower on behalf of the client to compensate for the appraisal service. However, this does not render the borrower as the client or entitle them to a copy of the appraisal from the appraiser. The appraiser is required to protect the confidential nature of the appraiser-client relationship, and thus is prohibited by law to provide a copy, or disclose the contents of his or her appraisal report to anyone other than the client. Any licensed appraiser violating this portion of the Uniform Standards of Professional Appraisal Practice may be subject to disciplinary action by the Office of Real Estate Appraisers (OREA). Although the appraiser cannot provide the borrower with a copy of the appraisal without the client’s permission, the borrower has every right to a copy of the appraisal from the lender, provided that he or she has paid for the appraisal and the loan involved 1-4 unit residential property. According to California Business and Professions Code Section 11423 , a borrower has up to 90 days after the lender has provided notice of their lending decision to submit a written request for a copy of the appraisal. The lender must then provide the borrower with a copy of the appraisal within fifteen (15) days after receiving the request, or within 15 days after receiving the appraisal, whichever is later. For additional questions or further clarification, please contact OREA and request to speak with a staff appraiser during normal business hours at (916) 263-0722. To top When comparable properties have been identified, the appraiser makes adjustments to the Sales Price of each of the comparables to bring them into equivalency with the subject property, accounting for differences in location, construction quality, living area, acreage, frontage, amenities and the like. This is where the professional expertise of an appraiser is most valuable. To top Personal property that may be on the subject property but which does not figure into the opinion of value in the appraisal report. To top What is a Comparable or "comp”? Properties like the subject property nearby which have sold recently, used as a basis to determine the fair market value of the subject property. To top An appraisal that is limited to an exterior-only examination of the Subject to make a determination that the property is actually there and has no obvious defects or damage visible from the outside. Fannie Mae's form for this type of appraisal is its 2055, so you may hear a drive-by referred to as a "2055." To top The appraiser's opinion of value as written in his or her appraisal report should reflect the fair market value of the property -- what a willing buyer would pay a willing seller in an arm's-length transaction. To top "Gross Living Area," the sum of all above grade floor space, including stairways and closet space. GLA is often determined using exterior wall measurements. To top A defect on the property that is not readily apparent but which impact the fair market value. Structural damage or termite infestation might be examples. To top A Multiple Listing Service is a proprietary listing of all properties on the market in a given area and their listing prices, as well as a record of all recent closed sales and their sales prices. Created by and used primary by real estate agents, many appraisers pay for access to these databases to aid in comparable selection and adjustment research. To top The value of assets diminishes as their capabilities degrade or more desirable alternatives are developed. Functional obsolescence is the presence or absence of a feature which renders the property undesirable. Obsolescence can also occur because the surrounding area changes, making a feature of the property less desirable. To top Short for the property being appraised -- the "subject property." To top The time during which a property can provide benefits to its owner. To top Short for Uniform Residential Appraisal Report, Fannie Mae form 1004, it is the form most lenders require if they need a full appraisal (that is, with walk-through inspection). To top Short for Uniform Standards of Professional Appraisal Practice, USPAP promotes standards and professionalism in appraisal practice, and is often enacted into law in a state. It is promulgated by the Appraisal Foundation, a non-governmental entity chartered by Congress to, among other things, maintain appraisal standards. To top An inspection that includes a visit to each part of the interior
of the house used in estimating value. To
top
|
HOME ABOUT
US  SERVICES FAQs CONTACT |