An appraiser provides an evaluation that produces an opinion of value. The appraiser will use a several “approaches,” typically three, to come to the estimation of market value. One of the processes is the Cost Approach – which is how much it would cost to replace the improvements, minus physical deterioration and other factors, plus the land value. Another of the approaches is the Sales Comparison Approach – which involves discovering a comparable analysis to other similar nearby properties which have recently sold. The Sales Comparison Approach is commonly the most accurate and clearest indicator of a likely sales price for a house. The third approach is the Income Approach, which is the best method in appraising income producing properties – it deals with estimating what an investor would pay based on the capital produced by the property.
An appraiser formulates a fair and credible assessment of market value, often in the context of a real estate sale. Appraisers illustrate their professional findings in appraisal reports.
There are many reasons to order an appraisal from Reveille Real Estate Appraisal 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.
- To reduce your tax burden.
- To show a homeowner has 30% equity and remove Primary Mortgage Insurance.
- To fight improperly assessed property taxes.
- To settle an estate.
- To offer you a negotiating tool when purchasing a home.
- To figure out a reasonable property value when putting your home on the market.
- To ensure parties are provided just compensation in eminient domain cases.
- Government agencies such as the IRS need an appraisal on every property.
- If you ever find yourself in a lawsuit.
The appraiser is not a home inspector nor does he/she do a complete home inspection. A third-party home inspector will judge the structure of the home, from the top to the foundation. The usual home inspector’s report will include an evaluation of the integrity of the house’s heating system, central air conditioning system (temperature permitting), interior plumbing and electrical systems, the roof, attic, and visible insulation, walls, ceilings, floors, windows and doors, the foundation, basement, and visible structure.
Honestly, they share nothing in common. The CMA depends on indefinite market trends. The appraisal depends on similar definite comparable sales. Area and construction prices are also precedent in an appraisal. All a CMA does is generate a “ball park figure.” An appraisal delivers a defensible and carefully documented opinion of value.
But the most significant factor is who’s doing the report. A CMA is created by a real estate agent who may or may not be trained in technical valuation concepts or even have a handle on market trends. A certified, Texas licensed professional who has formed a career on valuing homes in and around Brazos County is behind the appraisal. Further, the appraiser is an unbiased party, with no conditional interest in the value of a home, unlike the agent, who gets a commission based upon the price of the home.
Every appraisal should demonstrate a credible value opinion and must document the following:
- The client and other intended users.
- How the appraisal is supposed to be used.
- The appraisal’s purpose.
- Precisely what “value” attribute is being reported and what that value means.
- The effective date of the value opinion. (Sometimes this is in the past or maybe the future for new construction!)
- Pertinent property characteristics, including: location, physical attributes, legal attributes, economic attributes, the real property interest valued, and non-real estate items included in the appraisal, such as personal property, permanent equipment installations and even intangible items.
- Any known easements, restrictions, encumbrances, leases, reservations, covenants, contracts, declarations, special assessments, ordinances, and the like.
- Division of interest, such as fractional interest, physical segment and partial holding.
- What was entailed in the activity of completing the assignment.
In the documentation of an appraisal, each appraiser must ensure the following:
- The appraisal contained analysis of the information.
- That crucial 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 trustworthy, substantiated appraisal report was communicated.
There are rigorous education and practical experience requirements that must be fulfilled in order to get an appraisal license in Texas. In addition, appraisers must follow a strict industry code of ethics and comply with national standards of practice for real estate appraisal. The tenets for developing an appraisal and communicating its results are insured by enforcement of the Uniform Standards of Professional Appraisal Practice (USPAP).
Commonly, appraisers are employed by lenders to estimate the value of a house involved in a loan transaction – to make sure the subject is truly adequate collateral for the loan. Attorneys and CPAs also retain the services of appraisers for divorce and estate settlements.
Where does Reveille Real Estate Appraisal get the information used to estimate values in Brazos County or other areas?
One of the most important things an appraiser does is to collect property data. Data can be described as either Specific or General. Specific data is from the home itself; Location, condition, amenities, size and other specific data are documented by the appraiser while on site.
General data is received from a variety of sources. Local Multiple Listing Services (MLS) provide information on recently sold homes that might be used as comparables. Tax records and other public documents reveal actual sales prices in a market. Flood zone data is gathered from FEMA data outlets, such as a la mode’s InterFlood system.
And last but not least, the appraiser gathers general data from his or her past experience in doing assignments for other properties in the same market.
Any time 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 house, an appraisal helps you set the most appropriate price. When buying, you can avoid overpaying by getting an independent appraisal. If you’re engaged in an estate settlement or divorce, it ensures that property is divided fairly. A house is often the single, largest financial asset anybody owns. Without knowing its real value, wise financial decisions are impossible.
PMI is an acronym for Private Mortgage Insurance. PMI covers the lender in the event a borrower defaults on the loan and the value of the home is lower than the balance of the loan. Once you reach the point where your home’s equity plus the amount you’ve paid is at least 20% of your loan balance, you can have your PMI dropped.
Did you secure your mortgage with less than 20% down? Contact Reveille Real Estate Appraisal today to see if you can save money by removing your Private Mortgage Insurance premium.
The first step in most appraisals is the property 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. Inside, pick up any clutter and make sure we can find our way to things like furnaces and water heaters. In the yard, trim any bushes so we can be free to get an accurate measurement of exterior walls.
To help speed things along as well as ensure a more accurate report, attempt if possible to have the following items:
- A plot plan or survey of the house and land (if readily available).
- List of personal property to be sold with the building.
- Home inspection reports, or other recent reports for termites, EIFS (synthetic stucco) wall systems, septic systems and your well.
- Locate copies of the current listing agreement, broker’s data sheet and, in the event of a pending sale.
- A list of “suggested” improvements if the property is to be appraised “as complete.”
In real estate appraising, Market Value (as opposed to Fair Market Value) is commonly defined as:
“The most probable price (in terms of money) which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: the buyer and seller are typically motivated; both parties are well informed or well advised, and acting in what they consider their best interests; a reasonable time is allowed for exposure in the open market; payment is made in terms of cash in United States dollars or in terms of financial arrangements comparable thereto; and 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.”
In most real estate transactions, the appraisal is ordered by the lender. While the 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 buyer is entitled to a copy of the report – it’s usually included with all the other closing documents – but is not entitled to use the report for any other purpose without permission from the lender.
It’s different when it’s the homeowner hiring the appraiser for things outside securing a mortgage. In these scenarios, the appraiser may stipulate how the appraisal can be used; for PMI removal, or estate planning or tax challenges, for example. If not stated otherwise, the home owner can do whatever they want with the appraisal.
It really depends on the market. For example, if you live in a cold region, insulated windows can be a real plus. But they aren’t as attractive in a warm-weather climate.
No matter where you go, however, renovating a kitchen is almost always a safe investment. One recent study revealed that putting $20,000 into a kitchen remodel would add about $17,500 to the value of the home – or about an 88% return on investment. Bathrooms were second, yielding 85%. On the contrary, something that may not increase your value would be painting just for the sake of redecorating.