Answers
to Frequently
Asked Questions
1.
What is an
appraisal?
- An
appraisal
is the process of
developing an unbiased opinion of what a buyer might expect to pay
for a parcel of real estate. Most people rely on a state licensed and
certified appraiser/consultant to provide them with the most accurate
estimate of the
market value of their property.
- Market
value is defined as:
- Buyer and seller are typically
motivated;
- Both parties are well informed or
well advised, and acting
in what they consider their own best interests;
- A reasonable time is allowed for
exposure in the open
market;
Payment is made in terms of cash in U.S. dollars or in terms of
financial arrangements comparable thereto;
- 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.
2.
What
creates
value?
- Value is
created by four
interdependent factors: utility, scarcity, desire, and effective
purchasing power.
Each is active and always changing. The appraiser/consultant is
constantly analyzing these factors daily.
3.
What is the
difference between appraising and consulting?
- An appraiser
provides an
appraisal for market, insurable, investment, or some other defined
value of an identified interest or interests in a specific parcel or
parcels of
real estate as of a given date.
- A consulting service is the process of
providing information, analysis of real estate data, and
recommendations or conclusions on diversified problems in real estate, other
than estimating value.
4.
Why
is a real
estate appraisal and/or consulting necessary?
- Appraisals
have a wide variety of
potential uses and functions. Some of the more common uses of
residential
appraisals include mortgage financing, insurance replacement cost
calculation, estate
valuation, tax appeals, equitable distribution in connection with
marital
divorce actions and partnership dissolutions, and corporate employee
relocation, to name a few.
- Appraisers already do consulting as a part of their
work. The most
common consultation
assignments include Appraisal Reviews, Condemnation, Highest and Best
Use Studies,
Tax assessment analysis, Sales and marketing analysis,
Expert/Litigation valuation, Market Value
Assignments, Lease and contract analysis, Portfolio analysis, and
Zoning analysis.
5.
Who
does the
appraiser work for?
- The
appraiser/consultant works for the client. The client
may be a
private individual, developer, lending
institution, relocation company, insurance company, accountant,
attorney, etc.
- For mortgage financing, the lending institution
appoints the appraiser
to verify that the money lent will be adequately secure the property’s
value.
Federal regulations require the lending institution have an unbiased
third
party opinion of value in file before advancing new money.
6.
Does
the owner
receive a copy of the appraisal or consultation report?
- If you're the
client, you will
receive the original report and two copies. Since the lender is
creating the need
for the appraiser's service, and your money is paying for it, you're
entitled
to a copy of the report. However,
since the lender is the appraiser's client, professional ethics require
confidentiality
between the appraiser/consultant and the client - preventing the
appraiser from directly giving a copy to the owner.
7.
Why
are
appraisers certified or licensed?
- The Financial
Institutions Reform
and Recovery Act of 1989 (FIRREA) mandated all states to have licensure
and
certification programs for all real estate appraisers, regardless of
prior education and experience.
- Most states have two levels for certified
appraisers, Residential and
General Certified. State Certified General Appraisers can appraise all
types of
property with no limitations. The typical minimal education requirement
for
State Certified General Appraisers is 180 hours and at least 5 years of
experience.
8.
After
ordering
the appraisal, when will I know the value of the property?
- Residential:
Although the
average 1,500 square foot,
three-bedroom, two-bath home is inspected in about an hour, the data
collection and
verification process may take several days to complete due to
verification of
the cost, sales, and income comparisons. Verification enables the
appraiser/consultant to find out if a seller's concession influenced
the sale price, the condition of the interior, if there is updating and
remodeling, functional problems, or any other significant
characteristics.
- Commercial:
The
completion time will depend on the complexity of the
property. Some commercial appraisals may
take several weeks to complete, especially for a multi-tenant property
with many leases.
- Consulting:
Like
appraisals will vary depending upon
the complexity of the assignment. A pricing and market analysis may
take
just one or two days or several weeks.
9.
What
is
important when estimating the value of a property?
The
appraiser considers:
- Purpose and client's use of the appraisal
- Legal interests of real estate and real property
- Type of value to be estimated
- Important regional, city, and neighborhood data
- Social, economic, governmental and environmental
characteristics
- Subject site and improvement data
- History of ownership and use of the property
- Competitive supply and demand
- Inventory of competitive properties
- Sales and listings
- Vacancies and offerings
- Absorption rates
- Demand studies
- Highest and best use analysis (land as though vacant, and
property as improved)
- Land value estimate
- Application of the three approaches (cost, direct sales
comparison, and income capitalization)
- Reconciliation of value indications and final value estimate
- Report of the defined value.
- Although due
diligence is
performed in viewing a property, the appraiser is not an expert in
matters such as
pest control, mold, structural engineering, hazardous waste, etc.,
Therefore, no warranty is given as to these elements. The appraiser,
however, makes a
physical inspection of the land, the improvements, and the neighborhood
of the property by observation and typically notes any notable damage
of the
property in their report.
- From surface observation, it is not possible to
observe conditions
beneath the soil, structural defects, or other
components. The appraiser assumes that all mechanical equipment,
electrical, plumbing structural, roofing components, and appliances are
in operable
condition and in a status standard for properties of the subject type
and/or in condition commensurate with the balance of the improvements.
- The appraiser may require specific inspections of a
property, or if a
client has any questions about any
specific items, we can arrange for expert inspections.
11.
What’s
the
Difference Between an Appraisal and a Home Inspection?
- Although they
appear similar,
appraisals and home inspections are entirely different. The purpose of
an appraisal is
to estimate value, while the purpose of a home inspection is to
identify structural and safety issues.
- Further, the appraiser’s client is usually the lender,
while the home
inspector’s client is usually the buyer.
- Appraisers often specialize in the type of property
they appraise,
while inspectors may specialize in different
parts of the property – roofs, wells, septic systems, wood-destroying
pests and hazardous materials for example. Once an appraiser has
finished an
inspection, they still have a lot of work to do. The appraiser must
look over the neighborhood, analyze the local real estate market, and
select
comparable sales and listings.
- A home inspector examines the mechanical systems,
which make up the
building
itself – the foundation, walls, roof, heating system, electrical
system,
plumbing, doors, windows, appliances, etc. Home inspectors can serve a
much
larger area than appraisers because they don’t require much information
outside of the house itself.
12.
What’s
the
Difference Between a Licensed Appraiser’s and a Real Estate Agent’s
Opinion of Value?
- If the
appraiser and the real
estate agent
are knowledgeable, competent, and impartial, their values should be
similar. However, if the real
estate agent is not a licensed appraiser, they cannot call their
opinion of
value an appraisal. Therefore, the report might have a title of BPO
(Brokers
Price Opinion) or a CMA (Comparative Market Analysis).
- If the agent is not a licensed appraiser, they don’t
have to comply
with the Uniform Standards of Appraisal Practice (USPAP) and their
opinion
cannot support a federally-related transaction such as a home loan.
- Real estate agents do not usually charge a fee for
their BPOs or CMAs.
This service is an effective way to get
listings. Although some sellers will list with the agent who gives the
highest value estimate, experienced agents don’t typically work with
clients who won’t accept a realistic listing price.
- In the United States, there are people who are both
licensed appraisers
and licensed real estate agents.
The National Association of Realtors® even offers a special
designation program for Realtor®/appraisers.
13.
What
Should I
Do When the Appraiser Arrives?
- It is a good
idea to get your
house in the same condition you would
for a prospective buyer. Most appraisers see beyond a messy house to
the important features that add real value.
- If you have a large house or a complicated
floor plan, let the appraiser borrow the plans to save time in
measuring. Show the appraiser any
recent inspection reports, appraisals, Realtor analysis, and the
preliminary
title report. If you know of any recent sales of similar homes in your
neighborhood, inform the appraiser of the date and amounts. They could
be private sales that
are not listed in the Multiple Listing Service.
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