The method of performing an appraisal deals with an inspection which leads to an opinion of value.
There are three "common approaches to value" which helps the real estate appraiser arrive at an opinion of value.
One of the processes is the Cost Approach, which is how much it would cost to replace the improvements less physical deterioration and other factors, plus the land value.
The Sales Comparison Approach deals with searching for comparable homes in the vicinity and finding value based on comparing those prior sales to the home being appraised.
The Sales Comparison Approach is normally the most accurate and clearest indicator of value for a residential property but isn't always the case. The third and final approach is the Income Approach, which is mainly used to determine the value of a property based on what an investor would pay based on the income produced by the property. Depending on the specific assignment, all three approaches can be used and emphasis on one, two, or all three approaches may be applicable.
A key party in deciding the value of a home, an appraiser makes a neutral and professional opinion on the value of a property used in a real estate sale.
A complete analysis is displayed by the appraiser in a report.
There are a lot of reasons to get an appraisal from South Florida Real Property Appraisals with the usual reason being real estate and mortgage transactions.
A few other reasons for obtaining an appraisal include:
If you are applying for a loan.
If you would like to lower your property tax obligations.
To show the replacement cost of PMI.
To challenge high property taxes.
To handle an estate.
To give you a negotiating tool when purchasing real estate.
To figure out a reasonable price when selling real estate.
To protect your rights in a condemnation case.
Because an official agency such as the IRS requires it.
If you are ever involved in a lawsuit.
Home inspectors do not figure out an opinion of value and are not appraisers.
An inspection is a third-party investigation of the available structure and electrical and mechanical systems of a property, from the roof to the foundation.
For the most part, a home inspection report will evaluate the amenities and the necessities of the property: air conditioning (weather permitting), electrical functions, the condition of the heating system, the plumbing; then the structural capacity of the home such as the attic, accessible insulation, walls, floors, ceilings, windows, then the foundation, basement and visible structures.
To be blunt, the difference is similar to night and day.
What the CMA depends on are superficial trends.
An appraisal is based on comparable sales that can be validated by public record.
Area and building prices are also precedent in an appraisal.
The CMA will provide a non-specific figure.
Being a documented and containing a carefully investigated opinion of value, appraisals are defensible and stand up in legal situations.
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. There are appraisers who may or may not have a true grasp of the market. It's important the appraiser is well-qualified. Further, the appraiser is an independent voice, with no vested interest in the value of a home, unlike the real estate agent, whose income is tied to the value of the home.
Each report must reflect a credible estimate of value and must identify the following:
The client and other intended users.
The intended use of the report.
The purpose of the assignment.
The type of value reported and the definition of the value reported.
The effective date of the appraiser's opinions and conclusions.
Relevant property characteristics, including location attributes, physical attributes, legal attributes, economic attributes, the real property interest valued, and Non real estate items included in the appraisal, such as personal property, including trade fixtures and intangible items.
All known: easements, restrictions, encumbrances, leases, reservations, covenants, contracts, declarations, special assessments, ordinances, and other items of a similar nature.
Division of interest, such as fractional interest, physical segment and partial holding.
The scope of work used to complete the assignment.
In communicating an appraisal report, each appraiser must ensure the following:
That the information analysis utilized in the appraisal was appropriate.
That significant errors of omission or commission were not committed individually or collectively.
That appraisal services were not rendered in a careless or negligent manner.
That a credible, supportable appraisal report was communicated.
Most states require that real estate appraisers are state licensed or certified. The state licensed or certified appraiser is trained to render an unbiased opinion based upon extensive education and experience requirements. To become licensed or certified, appraisers must fulfill rigorous education and experience requirements. In addition, appraisers must abide by a strict industry code of ethics and comply with national standards of practice for real estate appraisal. The rules for developing an appraisal and reporting its results are insured by enforcement of the Uniform Standards of Professional Appraisal Practice (USPAP).
Appraisals are opinions of value. Different appraisers can have varying opinions.
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.
Typically, appraisers are employed by lenders to estimate the value of real estate involved in a loan transaction. Appraisers also provide opinions in litigation cases, tax matters and investment decisions.
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.
General data is gathered from a number of sources. Local Multiple Listing Services (MLS) 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. Flood zone data is gathered from FEMA data outlets, such as Metro Appraisals' 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.
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.
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.
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. Trim any bushes 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 and water heaters.
The following Items, if available, will help your appraiser to provide a more accurate appraisal in a shorter period of time:
A survey of the house and property.
A deed or title report showing the legal description.
A recent tax bill.
A list of personal property to be sold with the house if applicable.
A copy of the original plans.
There are different definitions of market value from a variety of sources. Most of them are very similar but it is important to read the appraisal report. The definition of market value and the source should be included in the report according to the Uniform Standards of Professional Appraisal Practice (USPAP). The most common definition of market value that we use is below.
The most probable price, as of a specified date, in cash, or in terms equivalent to cash, or in other precisely revealed terms, for which the specified property rights should sell after reasonable exposure in a competitive market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently, knowledgeably, and for self-interest, and assuming that neither is under duress. The Dictionary of Real Estate Appraisal 6th Edition, Appraisal Institute
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.
The answer to this is different depending upon the location of the home. Different markets value amenities differently. Adding a central air conditioner in Houston, Texas may add significant value, while putting one in a home located in Buffalo, New York might not 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 $10,000 kitchen remodeling project would add approximately $8,800 to the value of the home. Bathrooms were second, returning 85%.
South Florida Real Property Appraisals is willing to handle any questions you might have about appraisals or real estate in the Florida Keys (Monroe County, FL).
Contact South Florida Real Property Appraisals today to learn how we can help you with your specific valuation problems.