Frequently Asked Questions
The world of real estate appraisals can be confusing, but we’re here to make it a breeze. Find answers to common questions below or get in touch to ask your own!
Describe a real estate appraisal
The appraisal process is an estimation that leads to an opinion of value. There are three "common approaches to value" which assist the real estate appraiser to come to this opinion or valuation. One of the methods in use is the Cost Approach, which finds what it would cost to replace the improvements to the home, less the depreciation and physical dilapidation, adding the land value. Another of the processes is the Sales Comparison Approach - which concerns making a comparison to other similar properties within a close vicinity which have recently sold. The Sales Comparison Approach is commonly the most accurate and clearest indicator of a likely sales price for a house. 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 capital generated by the property.Describe what a real estate appraiser does
A real estate appraiser offers a fair and credible determination of market value, in the support of real estate transactions. Appraisers reveal the details of their expert analysis in appraisal reports.Why would someone need real estate appraisal services?
There are a lot of reasons to get a real estate appraisal with the usual reason being real estate and mortgage transactions. A few other reasons for purchasing a report include:
- If you are applying for a loan.
- If you would like to reduce your property tax obligations.
- To show a homeowner has 30% equity and remove Primary Mortgage Insurance.
- To contest improperly assessed property taxes.
- To handle an estate.
- To give you a negotiating tool when purchasing a home.
- To determine a likely price when listing your home.
- To ensure parties are provided just compensation in eminent domain cases.
- Government agencies such as the IRS need an appraisal on every house.
- It's possible you could have to deal with being in a lawsuit - an appraisal will help.
What is the difference between an appraisal and a comparative market analysis (CMA)?
To be blunt, it's like comparing broadband and dial-up. What the CMA relies upon are vague trends. Appraisals use similar sales which are verifiable resources. The appraisal report will also include location and construction costs. All a CMA does is generate a "ballpark figure." An appraisal delivers a defensible and carefully documented opinion of value.
The person behind the report is hands down the biggest difference between a CMA and an appraisal. A CMA is written by a real estate agent who may or may not be trained in technical valuation concepts or even have a handle on market trends. The appraisal is created by a licensed, certified professional who has made a career out of valuing properties. Likewise, the agent has a vested interest in the property's selling price - their commission - whereas the appraiser is bound by a code of ethics to accept a flat fee for work they perform, regardless of their outcome.
What are the contents of an appraisal report?
The main point of an appraisal document is to let the reader know the value of the real estate in question, and depending on the scope of the report, one will customarily see the following:
- The client and other intended users.
- The intended use of the report.
- The purpose of the assignment.
- Precisely what "value" attribute is being reported and what that value means.
- The effective date of the appraiser's opinions and conclusions.
- Characteristics of the property that have a bearing on the value, including: location, physical attributes, legal attributes, economic attributes, the property rights valued, and non-real estate items included in the valuation, such as personal property, trade fixtures, and even intangible factors.
- Any 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.
- What was entailed in the process of completing the assignment.
After completing the appraisal, how can I have certainty that the value indicated is accurate?
In the documentation of an appraisal, each appraiser must make sure of the following:
- That the information analysis contained in the appraisal was suitable.
- That crucial errors of omission or commission were not committed individually or collectively.
- That appraisal services were not conducted in a careless or negligent fashion.
- That a trustworthy, supportable appraisal report was communicated.
Who hires BD Appraisals (617) 838-1476?
Most of the time, appraisers are employed by mortgage lenders to render a value opinion on the property involved in a loan transaction. Attorneys and CPAs also hire appraisers for asset division and estate settlements.
Where does an appraiser get the information used to estimate values in Norfolk County or other areas?
Compiling information is one of the primary occupations of an appraiser. Data can be classified as either Specific or General. Specific data is gathered from the property itself; Location, condition, amenities, size, and other specific data are documented by the appraiser while on site.
General data is received from a variety of places. Local Multiple Listing Services (MLS) provide data on recently sold homes that could be used as comparables. Tax records and other courthouse documents reveal actual sales prices in a market. Flood zone data is available from FEMA data outlets, such as a la mode's InterFlood service.
And most importantly, the appraiser assembles general data from his or her past experience in creating appraisals for other properties in the same market.
How is an appraiser different than a home inspector?
Appraisers do not do complete home inspections and are not home inspectors. An inspection is a third-party investigation of the available structure and electrical and mechanical systems of a property, from the top to the bottom. The archetypal home inspector's report will include an evaluation of the condition of the property'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.
Why do I need a professional real estate appraisal?
A real estate appraisal is worthwhile anytime the value of your home is relevant to some financial decision. If you're selling your house, an appraisal helps you set a price that maximizes profit and reduces time on the market. 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 house is often the single, largest financial asset anybody owns. Don't make decisions in the dark with a professional appraisal.
What exactly is PMI and how can I get rid of it?
PMI is an acronym for Private Mortgage Insurance. PMI covers the lender if a borrower doesn't pay on the loan and the value of the house is less than what the borrower still owes on the loan. You can have your PMI dropped once you've achieved 20% equity in your home through appreciation and principal payments.
Should I do anything in advance of the appraisal appointment?
The first step in most appraisals is the home inspection. What this entails is the appraiser, after setting up an appointment, personally going through the home - recording the layout of the rooms, taking photos, and documenting the general condition of its features. On the home's interior, pick up any clutter and make sure we can access things like furnaces and water heaters. In the yard, trim any landscaping so we can be free to get an accurate measurement of outside walls.
The following items, if available, will help your appraiser to provide a more accurate appraisal in a shorter period of time:
- Information on the latest purchase of the property in the last three years.
- A list of any personal property that will be left behind and sold with the home, such as an oven, or a washer and dryer, if applicable.
- Home inspection reports, or other recent reports for termites, EIFS (synthetic stucco) wall systems, your septic system and wells.
- A list of any major home improvements and upgrades, the date of their installation and their cost (for example, the addition of Energy efficiency upgrades or roof repairs) and permit confirmation (if available).
- A list of "suggested" improvements when the property is being appraised "as complete".
Once complete, who actually owns the appraisal report?
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 appraisal - it's usually included with all the other closing documents - but is not entitled to use the report for any other purpose without permission from the lender.
It's different when it's the homeowner engaging the appraiser for things outside securing a mortgage. In these cases, the appraiser may state the purpose of the appraisal; for PMI removal, or estate planning or tax challenges, for example. If not stated otherwise, the homeowner can use the appraisal for any purpose.
What is "Market Value?"
In real estate appraising, Market Value (as opposed to Fair Market Value) is commonly defined as:
"The most probable price (in terms of money) which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and 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: the buyer and seller are typically motivated; both parties are well informed or well advised, and acting in what they consider their best interests; a reasonable time is allowed for exposure in the open market; payment is made in terms of cash in United States dollars or in terms of financial arrangements comparable thereto; and 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."
Are some home improvements more worthwhile than others?
This really depends on where the home is. For example, while quality appliances are attractive, a $7000 built-in refrigerator won't pay off in a neighborhood of moderately priced homes
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, yielding 85%. On the contrary, work that may not add value would be painting just for the sake of redecorating.
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