An appraisal is a report that can be given in written and oral form that contains an opinion of value base on culmination of observation, market data, market trends, subject amenities and their relationship to the subject, along with the most applicable methods of value (sales comparison, cost approach, income approach, etc). This final opinion,(in some cases an estimate) is discerned using a formal process that typically uses three "common approaches to value".
One of the processes is the Cost Approach - which is how much it would cost to replace (not reproduce) the improvements, minus physical deterioration and other factors, then adding the land value.
The most common approach in finding the value of a house is the Sales Comparison Approach which involves making a comparison to similar properties with in the subject's market place and appropriate distances.
Usually, the Sales Comparison Approach is the most accurate indicator of value of a house.
The third approach is the Income Approach, which is the best method in appraising income producing properties - it deals with estimating what an investor would pay based on the capital produced by the property. Finally, one must understand an appraiser's conclusions and opinions regarding any property is only good for 120 days. This makes sense when you consider the quarterly fluctuations in the market place.
The primary point of an appraiser's job is to quantify an unbiased, professional opinion of market value to assesit with financial transactions, typically a mortgage lien on any given real property.
Appraisers present their professional investigation in detailed appraisal reports regarding the subject and it's placement in the market. These report can also be given orally.
There are many reasons to purchase an appraisal with the most common reason being real estate and mortgage transactions.
A few other reasons for purchasing an appraisal report include:
If you are applying for a loan, buying or refinancing.
Completing renovations and a desire to see if it worth the work.
If you would like to lower your property tax obligations.
To show the replacement cost of PMI.
To fight inflated property taxes.
To settle an estate.
To offer you a leg-up when purchasing real estate.
To find an honest sales price when selling real estate.
To defend your rights in a condemnation case.
Government agencies such as the IRS require an appraisal on every home.
If you are ever involved in a lawsuit.
The appraiser is not a home inspector nor does he/she do a full home inspection, nor are they qualified to do so (typically).
An inspection is a third-party evaluation of the accessible structure and systems of a property, from the top to the foundation.
The archetypal property inspector's report will contain an evaluation of the integrity of the property's heating system, 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. An Appraiser offer their educated opinion of market value on the subject at a given point in time.
Simply put, the difference is similar to night and day.
What the CMA relies upon are vague trends.
An appraisal relies on comparable sales that can be validated by records.
The appraisal report will also contain neighborhood and building prices.
The CMA will provide a non-specific figure and can be completed by a party that is NOT and appraiser and does NOT have similar qualification as a license or certified appraiser.
This is 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. Additionally, the real estate agent is not governed by the same principles as an appraiser and can be influenced by potential commission and assignments - thus altering the scope and credibility of any CMA 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.
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 in the appraisal, 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) 2017.
Regulations regarding licensing and certification of Real Estate Appraisers vary from state to state. However, licensing and certification is most often associated with 175 credit hours of coursework, tests and 2000 hours practical experience. Once an appraiser is licensed/certified, he or she is required to take continuing education of 28 credit hours in order to keep the license current.
Typically, appraisers are employed by self or a firm of appraiser. Essentially, appraiser a hired contractors on any given assignment. Some banks have staff appraiser's, but they are becoming fewer and further between.
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 (RMLS and NWMLS in the Pacific NW areas). Tax records and other public documents verify actual sales prices in a market. Flood zone data is gathered from FEMA data outlets, such as InterFlood products by Alamode. And most importantly, the appraiser gathers general data from his or her past experience in creating appraisals for other properties in the same market.
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 for the home and the market's expectations. If you're buying, it makes sure you don't overpay, avoiding being upside down on your house before you even move in! If you're engaged in an estate settlement or divorce, it ensures that property is divided fairly without bias toward the either party. A home is often the single, largest financial asset anybody owns. Knowing its true value means you can made a more educated financial decision(s).
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. An appraiser can offer suggestions that lend the quick turn on the dollar of investment to assist in getting over the PMI.
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:
See what quick things can be done on the outside of the house to improve the "curb appeal"
A list of any updates that has been completed on the property in question that can go as far back as 15 yrs.
A recent adjustment in assessments.
Any applicable FSBO, that an appraiser may not be aware of.
Remediate the deferred maintenance around the house, defective paint, water build up in crawlspace, replace areas with potential wood rot, etc.
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.
Quick answer: the party that engages the appraiser for the assignment. It does not matter to pays for the assignment, but whom the appraiser has been engaged by - who gave the appraiser the assignment in the first place. Example: In most real estate transactions (buy, sell, refinance,etc), 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 legally 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 appraiser is very limited with the conversations that can be had regarding the appraisal assignment due to USPAP Ethic's and Communication Standards.
The exception to this rule is when a home owner engages an appraiser directly; a private appraisal. 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.
The answer to this is different depending upon the location of the home, the type of improvement being completed and market's perception of the improvement. Adding an in-ground pool in a home in Arizona may add significant value, while putting one in a home located in Portland, OR might not have much impact at all.
As a rule, the most value returned from renovating a home comes in the kitchen, while switching the counters to a solid surface. 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%.
Spencer's Appraisal Services is always eager to address any questions you might have about appraisals in Vancouver and Clark County.
Feel free to contact us today.