Monday, April 27, 2015

Answering the 15 most common questions about real estate appraisals.

What is an appraisal?
An appraisal is an estimate or professional opinion of value based on a comprehensive inspection of the subject property, and then comparing the findings to similar properties sold in the same neighborhood. The purpose of the appraisal is to define the market value of the property – what a reasonable sales price would be – at the present time.

What are the three parts of the appraisal process?
There are generally three parts to any appraisal process:

1) The inspection.
After the appraisal is ordered, a licensed appraiser comes out to the subject property and inspects it, colleting data they’ll use to determine value.

2) Researching comparable properties.
Post inspection, the appraiser researches similar homes that have sold or are active or pending listings to gauge a base of market value. The appraiser then adjusts that value based on particulars of the subject property and other macro factors.

3)The final appraisal report.
The appraiser produces a final report that details his or her findings and issues their final value estimation.

When do you need an appraisal?
An appraisal is ordered every time there is a mortgage loan issued (refinance or purchase), a sale of a home, and sometimes in other circumstances, like a divorce, total asset evaluation, or loan modification. 

Who owns the appraisal?
The party who ordered the appraisal owns it, and the appraisal company cannot legally release any of the information or the report to anyone else without written authorization.

How do they value your property?
The goal of an appraisal is to calculate the actual market value of your home. They do this using several method of valuation, including the comparable sales price approach. With that, the appraiser compares your home to others on the market that have sold recently, called “comps” or comparables. Ideally, appraisers compare your home to identical homes that have sold in your same neighborhood within a few months. If those criteria don’t exist, they start comparing to similar homes a little further out that have sold within the last 6 months or so. Based on this data and an inspection of your home, they make adjustments and come up with an estimated appraised value.

What market factors go into finding your home’s value?
Appraisers look at a bevy of factors to determine a property’s fair market value. That number is a snapshot of value at that exact time, but also takes into account the future benefits and ongoing value of the property. Those include economic, social, governmental, and environmental factors that could exert influence on home values in the area.

Appraisers look at 4 macro factors:

1) Demand:
The desire or need for people to buy and live in such a home.

2) Utility:
The specific home’s ability to fit the needs of future owners.

3) Scarcity:
The amount of other homes in the area and on the market that could fit those needs, i.e. the competition.

4) Transferability:
The simplicity and ease with which the property can be sold or transferred to another owner.

What do appraisers look when they inspect a home?
Exterior condition of your home.
Roof composition, age, and condition.
Square footage.
How many bedrooms and bathrooms.
The age of the home.
The general condition.
HVAC system.
General maintenance.
Home improvements and remodels.
Pools, fireplaces, outdoor living, and permanent extras.

Are the appraised value and price the same?
Remember that appraised value is a professional opinion what the home is worth on the current market, but in certain circumstances, a buyer and seller may agree on the a price that is higher or lower than the appraised value. The appraised value is not necessarily the price of the home, but a good pinpoint of value.

How long is an appraisal good for?
An appraisal is valid for lending purposes for up to a year after it’s issued. But usually after six months has passed, borrowers may consider getting an updated value. They can do that with a re-certification of value through the appraiser, without having to order a whole new report.

Why do lenders always need an appraisal?
Lenders require an appraiser because it’s the best way to ensure their investment is sound. If the property did not hold enough value or had serious flaws or problems, the mortgage lender would end up losing a lot of money if the borrower defaults and they have to take the property back.

What can you do to influence the outcome?
In theory, the only thing you can do to raise your home’s appraised value is to keep the property in good condition, make all necessary repairs, and possibly remodel or upgrade. But it can’t hurt to keep your home clean, uncluttered, and looking neat when the appraiser comes to inspect. Even better, make a list of any repairs or remodels you’ve done that could possibly improve the value, including any high-end or brand new materials or appliances. Your realtor could also supply a list of accurate comparable properties for the appraiser to consider, which may help your case.

Is the assessment the same as an appraisal?
Assessed value is actually issued by the municipality in order to gauge how much to charge for property taxes. Most areas require a reassessment of properties every ten years or less to account for rising prices and market factors.

What kinds of appraisers are there?
While appraisers go through rigorous training, examinations, and state licensing, not all appraisers are created equal. There are residential real estate appraisers who cover single family homes up to a million dollars as well as multi-family buildings up to four units, certified residential appraisers who can value properties over one million dollars, and certified general appraisers who can also value commercial properties.

Who’s interest does the appraiser represent?
Appraisers are neutral third-party professionals that base their findings solely on independent market data.

Are appraisals standardized?

Most appraisers across the country use standard forms, the most being the 1004, which is the appraisal report for residential real estate used by Freddie Mac and Fannie Mae, the two largest mortgage backers.

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