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FAQ

What is an appraisal?

The Uniform Standards of Professional Appraisal Practice (USPAP) defines an appraisal as “The act or process of developing an opinion of value; 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.

What does an appraiser do?

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.

What does the appraisal report contain?

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. 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.

How do I get ready for the appraiser?

The first step is the property/home inspection, in most appraisals. During this process, the appraiser measure the home, chart the layout of the rooms inside, note 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 bushes and move any items that would make it difficult to measure the outside of the structure. On the inside, make sure that the appraiser can easily access items like furnaces, water heaters and oil tanks where applicable.

Which home renovations add the most to the price?

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%.

Who Actually Owns the Appraisal Report?

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.

Where does an appraiser get the information used to estimate value?

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.

After completing the report, what assurance is there that the value indicated is valid?

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?

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.

Who do appraisers work for?

Per USPAP guidelines, an appraiser’s client is the party or parties that engage an appraiser (by employment or contract) in a specific assignment, 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. Appraisers also provide services to homeowners.

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.