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What is an appraisal?
Why would a person need a home appraisal?
What is the difference between an appraisal and a home inspection?
What is the difference between an Appraisal and a Comparative Market Analysis (CMA)?
How are appraisers certified?
Where does an appraiser get the information used to estimate value?
Why do I need a professional appraisal?
What exactly is PMI and how can I get rid of it?
How do I get ready for the appraiser?
Who Actually Owns the Appraisal Report?
Which home renovations add the most to the price?
What is a manufactured home and how does it differ from a modular home?
What is an appraisal? Back to top
An appraisal is a thought process leading to 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. For a more detailed description of the appraisal process click here: What is an appraisal?
Why would a person need a home appraisal? Back to top
There are many reasons to obtain an appraisal with the most common reason being real estate and mortgage transactions. Other reasons for ordering an appraisal include:
To obtain a loan (Purchase, Refinance, Equity, etc.).
To determine an appropriate listing price when selling real estate.
To provide a negotiating tool when purchasing real estate.
To obtain a fair and equitable division of assets in a divorce proceeding.
To settle an estate.
To establish replacement cost for insurance purposes.
To contest high property taxes.
Because a government agency such as the IRS or Bankruptcy Court requires it.
If you are involved in a lawsuit. For more details on when you might need an appraisal click here: When to get an Appraisal For a more detailed look at what goes into an appraisal report click here: Sample Appraisal ReportWhat is the difference between an appraisal and a home inspection? Back to topThe appraiser is not a home inspector, and will only make note of readily apparent defects or depreciation. 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 exterior siding, roof materials, exterior doors and windows, foundation, floor wall and roof structures; mechanical systems (electrical, heating, plumbing). They will also go into the attic and under-floor crawl spaces. You should expect the inspector to spend a minimum of 2.5-3 hours on the site. Most inspectors encourage client attendance at the inspection and will take the time to educate you about their findings along the way and answer any questions you may have. This should be followed by a detailed narrative report (Not a Checklist!). Qualifications to look for in a Home Inspector are: Licensed for WSDA Structural Pest Inspections
Recommended Home Inspection Firms:
Northwest Inspection Engineers http://www.northwestinspectionengineers.com/staff.htm
HKI Building Inspections http://www.hkibuildinginspections.com/
What is the difference between an Appraisal and a Comparative Market Analysis (CMA)? Back to top
Simply put, the difference is night and day. The CMA relies on vague market trends. The appraisal relies on specific, verifiable comparable sales. In addition, the appraisal looks at other factors like condition, location and construction costs. A CMA delivers a ''ball park figure.'' An appraisal delivers a defensible and carefully documented opinion of value.
But the biggest difference is the person creating the report. A CMA is created by a real estate agent who may or may not have a true grasp of the market or valuation concepts. The appraisal is created by a licensed, certified professional who has made a career out of valuing properties. The appraiser is an independent voice, with no vested interest in the value of a home.
How are appraisers certified? Back to top
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. To see the specific requirements for any state click here.
Where does an appraiser get the information used to estimate value? Back to top
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. The Inspection
An appraiser's duty is to inspect the property being appraised to ascertain the true status of that property. The appraiser must actually see features, such as the number of bedrooms, bathrooms, the location, and so on, to ensure that they really exist and are in the condition a reasonable buyer would expect them to be. An appraiser's inspection often includes a sketch of the property, ensuring the proper square footage and conveying the room layout. Most importantly, the appraiser looks for any obvious features - or defects - that would affect the value of the house.
General Data is gathered from a number of sources. Local Multiple Listing Services (NWMLS and BWCMLS) 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 and help to confirm or add to the data in the MLS reports. Replacement cost data is obtained from the Marshall & Swift Residential Cost Guide or the N.A.D.A. Manufactured Housing Appraisal Guide. 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.
Why do I need a professional appraisal? Back to top
Anytime the value of your home or other real property is being used to make a significant financial decision, an appraisal helps. If you're selling your home, an appraisal helps you set the most appropriate value. 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 home is often the single, largest financial asset anybody owns. Knowing its true value means you can the right financial decisions.
What exactly is PMI and how can I get rid of it? Back to top
PMI stands for Private Mortgage Insurance. It insures a lender against loss on homes purchased with a down-payment of less than 20%. Once equity in the home reaches 20% you can eliminate the PMI and start saving immediately. For a detailed discussion of PMI and how to get rid of it click here: What is PMI and how to get rid of it
How do I get ready for the appraiser? Back to top
The first step in most appraisals is the home inspection. During this process, the appraiser will come to your home and measure it, determine the layout of the rooms inside, confirm 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. Unlock any gates and move any items that would make it difficult to measure the structure. On the inside, make sure that the appraiser can easily access items like furnaces, water heaters and the under-floor crawl space. See How to Prepare
Who Actually Owns the Appraisal Report? Back to top
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.
Which home renovations add the most to the price? Back to top
The answer to this is different depending upon the location of the home. Different markets value amenities differently. Adding a central air conditioner or an in-ground swimming pool in Moore, Oklahoma may add significant value, while putting one in a home located in western Washington doesn't usually 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 $30,000 kitchen remodeling project would add approximately $26,400 to the value of the home. Bathrooms were second, returning 85%
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