Typically, appraisers are retained by lenders to provide a supportable value opinion of a property involved in a loan transaction to make sure the real estate is truly adequate collateral for the loan. Attorneys, CPAs, insurance companies, and homeowners also retain the services of appraisers for asset division, estate settlements, and many other reasons.
FAQs
Dive into our FAQ section where clarity meets convenience! Whether you’re curious about our process, the factors that influence property value, or how to prepare for an appraisal, we've got you covered.
Why would I need an appraisal?
The most common use of an appraisal is connected with real estate or mortgage transactions, in which case the lender is required to be the client. However, additional reasons for appraisals ordered by others may include
- to demonstrate a homeowner’s acquired equity and remove mortgage insurance
- to challenge high property taxes
- to plan for or settle an estate
- to provide advanced insight when purchasing real estate
- to determine the most probable price when listing your property for sale
- to ensure parties are provided just compensation in eminent domain cases
- to support or dispute insurance claims
- to assist with bankruptcy
- to assist with divorce resolutions
What is the difference between an appraisal and a home inspection?
An appraiser provides an opinion of value, and the inspection performed by an appraiser during the appraisal process is focused on readily observable value-related items. Home inspectors, on the other hand, do not provide an opinion of value; their inspections are much more detailed. A third-party home inspector will inspect the structure of the property from the roof to the foundation, reporting on condition and functional concerns. Usually, a home inspector’s report will also explain the amenities of the property and comment on the functionality of systems including HVAC, electrical, plumbing, insulation, walls, floors, ceilings, windows, etc.
Is an appraisal the same as a comparative market analysis (CMA)?
No. An appraisal delivers a defensible and carefully documented opinion of value and is performed by a licensed or certified professional bound by a code of ethics to be independent, impartial, and objective. A CMA, on the other hand, delivers a “ballpark figure” and is usually performed by a real estate agent who may have a vested interest in the property’s selling price. Lending institutions do not provide loans based on CMAs but do require an appraisal.
What can I expect to see in an appraisal report?
The main objective of an appraisal report is to provide a value opinion of the property being appraised. Depending on the scope of the report, you’ll usually see the following:
- the name of the client who has engaged the appraiser’s services
- the intended use of the report, along with its intended users
- the purpose of the appraisal
- the type of value being reported and a definition of that value
- the effective date of the appraisal (this could be in the past or possibly the future, depending on the needs of the client)
- characteristics of the property that have a bearing on the value, including location, physical attributes, legal attributes, economic attributes, and the property rights in question
- any known easements, restrictions, encumbrances, leases, reservations, covenants, contracts, declarations, special assessments, ordinances, and the like
- the scope of work, or what activity was performed in completing the assignment
Where does an appraiser get the data used to estimate value?
One of the primary tasks an appraiser must accomplish is to compile data. Data can be classified as either Specific or General. Examples of specific data come from the property itself and include location, condition, amenities, size, and other data gathered by the appraiser during an inspection.
General data is obtained from many sources. Local Multiple Listing Services (MLS) have information on recently sold homes that could be used as comparables. Tax records and other courthouse documents reveal actual sales prices in a market. Nationally published building cost services provide information used in cost analysis. Appraisers also routinely report when a property lies in a flood zone, and that information is retrieved from FEMA data.
Appraisers also keep files on every property they have previously appraised and utilize general data from this past experience in creating appraisals for other houses in the same market.
What exactly is PMI and how can I get rid of it?
PMI stands for Private Mortgage Insurance. This added plan covers the lender in case 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 often have your PMI dropped, lowering your monthly payment, once you’ve achieved 20% equity in your home through appreciation and principal payments.
Does the appraiser need anything from the homeowner in advance?
The first step in most appraisals is the property inspection. What this entails, after setting up an appointment, is the appraiser personally going through the home, recording the layout of the rooms, taking photos, and documenting the general condition of its features. A property owner can assist by making sure the home is clutter free and that all areas are accessible, both inside and outside. To expedite the appraiser’s work as well as ensure a more accurate report, it may be helpful to have the following items ready when the appraiser arrives:
- a plot plan or survey of the house and land (if readily available)
- building plans
- information on “Homeowners Associations” or condominium covenants and fees
- a list of major home improvements and upgrades, the date of their installation and their costs, along with permit confirmation (if applicable)
- a list of proposed improvements when a property is being appraised “subject to completion”
Who actually owns the appraisal report?
The client who is named in the appraisal report owns the appraisal report. In most real estate transactions, the lender is the client and therefore owns the appraisal. The buyer is entitled to obtain a copy of the report from the lender (it’s usually bundled with all the other closing documents) but is not entitled to use the report for any other purpose without permission from the lender.
When an individual engages the appraiser, they are the client and own the appraisal report. This scenario often occurs when an appraisal is used for PMI removal, estate planning, or tax challenges. Lending regulations prohibit the use of an appraisal performed for an individual in loan transactions.
Common Misconceptions
1. Assessed value should equate to market value.
While most states support the concept that assessed value approximates estimated market value, this often is not the case. Examples include when interior remodeling has occurred and the assessor is unaware of the improvements, or when properties in the vicinity have not been reassessed for an extended period.
2. The appraised value of a property will vary depending upon whether the appraisal is conducted for the buyer or the seller.
The appraiser has no vested interest in the outcome of the appraisal and should render services with independence, objectivity, and impartiality, without regard for whom the appraisal is conducted.
3. Market value should approximate replacement cost.
Market value is based on what a willing buyer would pay a willing seller for a particular property, with neither party being under pressure to buy or sell and is of most use to lenders. Replacement cost is the dollar amount required to reconstruct a property and is of most use to insurance companies.
4. Appraisers use a formula, such as a specific price per square foot, to figure out the value of a home.
Appraisers make a detailed analysis of all factors pertaining to the value of a home including its location, condition, size, proximity to facilities, and recent sales prices of comparable properties.
5. When the sales prices of homes in a given area are reported to be changing at a particular rate, the value of individual properties in the area can be expected to change at the same rate.
Value change of a specific property must be determined on an individualized basis, factoring in data on comparable properties and other relevant considerations. This is true in good times as well as bad.
6. You can tell what a property is worth simply by looking at the outside.
Property value is determined by a number of factors including location, condition, improvements, amenities, and market trends, not just outward appearances.
7. Because consumers pay for appraisals when applying for loans to purchase or refinance real estate, they own the appraisal.
The owner of an appraisal is the client, regardless of who pays for the report and, for loan purposes, the client is typically the lender. However, consumers must be given a copy of the appraisal report by the lender, upon written request, under the Equal Credit Opportunity Act.
8. Appraisers are hired only to estimate real estate property values in property sales involving mortgage-lending transactions.
Depending upon their qualifications and designations, appraisers can and do provide a variety of services, including advice for estate planning, dispute resolution, zoning and tax assessment review, and cost/benefit analysis.
9. An appraisal is the same as a home inspection.
An appraisal does not serve the same purpose as a home inspection. The appraiser forms an opinion of value in the appraisal process and resulting report, while a home inspector determines the condition of the home and its major components.