What is an Appraisal?
An appraisal is an opinion of value or the act or process of estimating value. This opinion or estimate is derived by using the three recognized valuation methods, which are:
- The Summation Cost Approach to value is what it would cost to replace or reproduce the improvements as of the date of valuation, less the accumulated depreciation, plus the value of the site.
- The Direct Sales Comparison Approach to value makes use of comparable properties of similar size, location, and quality, which have recently sold. This is the most common valuation method for single-family residential dwellings as it most accurately indicates to the client current market conditions and behavior patterns of buyers and sellers in a particular market area.
- The Income Approach to value is of primary importance in the valuation of income producing properties and is generally not used for owner occupied residences. This approach to value provides an objective estimate of what a prudent investor would pay based on the income and expenses associated with the property.
Why do you need an appraisal?
Most common uses for property valuation reports are for the purchase, sale or refinance of a specific piece of real estate. Other uses for property valuation reports would be for: divorce, estate, foreclosure, insurance, pre-sale, pre-purchase, and tax appeal.
What are the steps of an appraisal?
1.Data collection and preliminary analysis
2.Highest and best use analysis
3.Land value estimation
4.Application of three (3) approaches to value, as appropriate
5.Reconciliation of value approaches
6.Reporting of value estimate
Who determines the appraisal fee?
Appraisal fees are determined by the individual appraiser and are generally based on the complexity and location of the property to be appraised.
What if you disagree with the appraisal?
The findings of a professional appraisal are objective and supportable as they are developed from reliable and verifiable sources, however should you disagree with the outcome you may:
1.If you contracted for the appraisal, directly with the appraiser, you should contact them directly with any concerns or questions.
2.If the appraisal was requested by a third party, like a lending institution or mortgage company, you must contact them and express your concerns which will then be related to the appraiser.
Can you question the value estimate?
Simply stated, yes you may. This is certainly true if you feel that the appraiser has over-looked information or facts like recent sales in the neighborhood. However, when you disagree with the final value outcome of an appraisal report, you should be prepared to support your claim with verifiable information, as simply stating your disagreement is not grounds to cause any change in the property’s valuation.
Why do you need another appraisal?
Values change over time. Lender’s will typically require a new appraisal when:
1.The original valuation report is over six (6) months old
2.The appraisal was completed by an unlicensed appraiser
3.Someone who is not currently on his or her list of approved appraisers completed the appraisal.
4. You have decided to change to another lender. The original appraisal is only good for the original lender and cannot be used by any other lender. In this case most likely you would be given a discount, but it must be treated as a new assignment, have a new inspection and an all new report. Appraisals cannot be “re-assigned” to a new lender.
Can I get a copy of the appraisal?
Under the Equal Credit Opportunity Act, your lender must provide you with a complete copy of the appraisal upon written request. Fortunately, most reputable lending institutions automatically provide the report to the borrower at or before settlement of the loan. You must request it, in writing, within 60 days from the inspection date. The appraisal firm cannot provide a copy to you, you must get it from the lender.
What can I do to assist the appraiser?
In preparing for the appraiser, certain information will prove helpful, such as:
1.Site plan or survey
2.Builder’s floor plan
3.Copy of the latest tax bill
4.Copy of the deed
5.List of capital improvements to the property
Although this information will be helpful to the appraiser, if it is not readily available to you the appraiser will derive the needed information from various reliable sources.
How long does it take to complete the appraisal?
The time it takes to complete the appraisal is dependent on the specific appraiser’s current workload and experience, complexity of the subject property, and availability of information. In general, from the date it is ordered, it takes approximately 3 to 5 business days for the appraiser to complete the typical residential property valuation report. All preliminary work is completed first, the office file would be created, research is started, the appointment would then be set, after the appointment the appraiser drives past and photographs comparable properties. Upon return to the office all data must eb input into the forms, all data must be evaluated and any comments written so the user of the report has a clear understanding of the appraisers research and conclusions. We provide a detailed floor plan style sketch of the property in the report. The user of the report can observe the pictures along with the sketch and visualize the property clearer.
We make every attempt to have the report to the lender within 2 days after inspection, not counting weekend or holidays and subject to snow, rain, or other acts of nature.
What is a comparable sale?
A comparable sale is a property that is similar to the subject property in most respects, which was recently sold at arms-length. The selection of comparable sales is in most residential valuations the most critical aspect in determining the estimated value for the property. It is paramount that the appraiser has the experience necessary in the market area of the subject property to research and analyze comparable sales, which represent the value characteristics necessary. The house style of the property, above grade living area, age, lot size and condition of the subject property and the comparables is very important to completing a credible appraisal report..
What is the definition of market value?
Market value is defined as the most probable price that a property should bring (will sell for) in a competitive and open market under all conditions requisite to a fair sale. The buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by any undue stimulus. Implicit in this definition is the consumption of a sale as of specified date ant the passing of title from seller to buyer under conditions whereby:
1.Buyer and seller are typically motivated
2.Both parties are well informed or well advised
3.A reasonable time is allowed for exposure on the open market
4.Payment is made in terms of cash, in U.S. dollars, or in terms of financial arrangements comparable thereto.
5.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.
What is an arms-length transaction?
This is when both the buyer and seller act completely independent and in their own self-interest. There is no relationship between the parties involved in the transaction.
What is highest and best use?
The highest and best use means the use or utilization that provides the most profitable return on investment. It is that use, which selected from reasonably probable and legal alternatives, which are found to be physically possible, appropriately supported and financially feasible to result in the highest possible land value.