Frequently Asked Questions

An appraiser provides a professional, unbiased opinion of market value, to be used in making real estate transactions. Appraisers show their formal investigation in appraisal reports.

The appraisal process is an evaluation that produces an opinion of value. This opinion or estimate is discerned through a formal method that generally uses three “common approaches to value”. The Cost Approach is one of the approaches that real estate appraisers use to find value; it involves finding what the improvements would cost less physical degradation, adding the land value. The most common approach in finding the value of a property is the Sales Comparison Approach which involves making a comparison to comparable recently sold properties in the market. Generally speaking, the Sales Comparison Approach is the most accurate indicator of value of a property. A third, but less common, approach in appraising properties is the Income Approach. It is generally used to determine the value of a property based on the capital a typical investor could expect to earn from a similar type of property. This approach is more common in valuing commercial properties or income generating residential properties.

Online value estimation tools have improved over the years. While they can give an idea of value, that online estimate is just that…an “estimate”.

Those online valuation tools don’t necessarily take into account the details of your property such as the square footage, a recent addition you may have made, that newly renovated kitchen, or a myriad of other factors that go into determining the true value of your property.

Anytime the value of your home or other real property is being used to make a significant financial decision, an appraisal by a certified or licensed professional is critical. 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. Real property is often the single, largest financial asset anybody owns. Knowing its true value means you can make the right financial decisions.

There are a lot of reasons to get an appraisal, the most common reason being real estate and mortgage transactions. However, just because you may not be in the market to buy or sell a home doesn’t mean getting an appraisal may not be important. Appraisals can be used to appeal a tax assessment in order to reduce your tax burden, to aid in reducing or eliminating monthly Private Mortgage Insurance (PMI) payments, planning your estate to ensure your beneficiaries are protected, and more:

• If you are applying for a loan
• To reduce your tax burden
• To officially display the replacement cost of Private Mortgage Insurance (PMI)
• To contest high property taxes
• To deal with an estate
• To assist in determining equitable property value (such as in a divorce or a dissolution of a business partnership).
• To give you a leg-up when purchasing real estate
• To determine an honest sales price when selling real estate
• To protect your rights in a condemnation case
• IRS tax determinations
• It’s possible you could be involved in a lawsuit – an appraisal will help

The appraiser is not a home inspector nor does he/she do a complete home inspection. A third-party home inspector will evaluate the structure of the house, from the roof to the foundation. Commonly, a home inspection report will explain the amenities and the requirements of the property: air conditioning (weather permitting), electrical systems, the condition of the heating system, the plumbing; then the structural integrity of the home such as the attic, accessible insulation, walls, floors, ceilings, windows, then the foundation, basement and visible structures. the answer

The Broker’s Price Opinion or Comparative Market Analysis (CMA) uses market trends to arrive at a very general value or range of values. An appraisal is far more comprehensive. It is based on recent comparable sales that can be validated by public record and it is based on the property and its characteristics.

A CMA generally delivers a “ball park figure.”

Rather than looking at a range of properties that may or may not be considered to be the ‘most comparable’, an appraisal takes into consideration the features specific to the property being appraised in order to arrive at an opinion of value.

Unlike a CMA, an appraisal will take into consideration the specific features of your property.

But the biggest difference between the two 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 and may not be certified as a valuation expert. The appraisal is created by a licensed or certified professional who has made a career out of valuing properties. A Realtor may only be concerned with getting the home sold. A lower selling price may get the home sold more quickly and may not necessarily impact the realtor’s commission by much but an under-priced home can be significant loss for the homeowner.

For example, if a selling agent’s commission is 3% of the selling price, a $10,000 difference in value only means $300 to the realtor but is a significant loss to the homeowner.

The appraiser is an independent voice, with no vested interest in the value of a home.

Each report must reflect a credible estimate of value and must identify, at a minimum, 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, and a description of the real property interest valued.
• All known: easements, restrictions, encumbrances, leases, reservations, covenants, contracts, declarations, special assessments, ordinances, and other items of a similar nature that could have an impact on value.
• The scope of work used to complete the assignment.

The most important part of the appraisal profession is providing appraisals that are credible. 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).

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.

Appraisers work for the client who has engaged the assignment. Typically, appraisers are employed by lenders to estimate the value of real estate involved in a loan transaction. However, appraisers may also provide opinions in non-lending assignments such as divorce, estate, 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. And most importantly, the appraiser gathers general data from his or her past experience in creating appraisals for other properties in the same market

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% or more of the home’s total value you can eliminate the PMI and start saving immediately.

In most real estate transactions, the appraisal is ordered by the lender whenever there is financing involved. Although the purchaser typically 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 purchaser is typically entitled to a copy of the report – it’s usually included with all of the other closing documents provided after the sale – 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 client 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. This intended use is always outlined in the appraisal report.