The appraisal process is an evaluation that produces an opinion of value.
The appraiser must use a number of "approaches," typically three, to come to the estimation of worth.
One of the processes in use is the Cost Approach, which evaluates what it would cost to replace the improvements to the house, less the depreciation and physical deterioration, plus the land value.
The Sales Comparison Approach deals with searching for comparable properties nearby and discerning value based on comparing those houses to the house being investigated.
The Sales Comparison Approach is commonly the most definitive and best indicator of value for a home.
The Income Approach is mainly used for figuring out the cost of income-producing properties based on what an investor would pay based on the amount of capital a property produce.
A key party in discerning the cost of a house, an appraiser makes an unbiased opinion on the value of a property used in a real estate transaction.
A complete investigation is presented by the appraiser in a report.
There are many reasons to order an appraisal from M.C. Appraisals, Inc. with the most common reason being real estate and mortgage transactions.
A few other reasons for obtaining an appraisal include:
To obtain a loan.
If you would like to reduce your property tax burden.
To show the replacement cost of PMI.
To challenge high property taxes.
If you need to settle an estate.
To provide you an edge when purchasing real estate.
To find a reasonable property value when selling real estate.
To defend your rights in a condemnation case.
Because a government agency such as the IRS requires it.
It's possible you could be involved in a lawsuit - an appraisal will definitely help.
The appraiser is not a home inspector and he or she does not do a complete home inspection.
A third-party home inspector will investigate the structure of the property, from the roof to the foundation.
Usually, a home inspection report will explain the amenities and the necessities of the home: air conditioning (weather permitting), electrical services, the condition of the heating system, the plumbing; then the structural integrity of the home such as the attic, exposed insulation, walls, floors, ceilings, windows, then the foundation, basement and other visible structures.
Frankly, the difference is night and day.
The CMA utilizes market trends to generate most of their business.
The appraisal is based on specific definite comparable sales.
The appraisal report will also contain area and building prices.
All a CMA does is generate 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. 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).
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.
SELLER CONCESSIONS: This is the topic that has many in the lending business very confused. Why? because some appraisers adjust for this on the sales grid while others do not. The truth is, if a concession is given by the seller in the form of cash, it must be adjusted out dollar for dollar.
FAQ: Q) Why must seller concessions be adjusted? it seems typical in the market, everyone is doing it. A) The purpose of adjusting comparable sales for concessions is to provide an indication of value of the subject property based on the definition of value. Even though the sales concession might be “typical” of the market and paid by the seller in virtually all transactions, the sale price is impacted by the concession. Q) How is a sales price impacted by seller concessions? Builders seem to give cash concessions all the time on new construction homes. A) It is important to remember that cash concessions given to a buyer is usually to help the buyer afford the closing cost of buying a home. further, cash concessions impact the sales prices as follows. Example: if an agreed sale price is $100,000 and the seller is giving $10,000 in closing help the sale price if typically affected by at least $10,000. But not just for the buyer, it also affects everyone in the transaction. Here's why, Lets say on the above mentioned sale, the sellers closing cost are 5% of the sales price, and the seller is paying 5% to the agent in commission. Ok, so with a sale price of $100,000 minus 5% commission -($5,000) and minus 5% closing cost -($5,000) and then minus $10,000 seller concessions to the buyer, the net proceeds to the seller is $80,000. Ok, same example only this time the buyer says instead of giving concessions of $10,000, lets just lower the price by that amount to $90,000. Seller will typical agree every time, and here's why. Now we have a sales price of $90,000, minus the same 5% closing cost -($4500) and minus the same 5% commission to the agent is -($4500), Net proceeds to the seller is now $81,000. So the seller makes an extra $1,000 on the sale of his/her life's investment, both the seller and the buyers are paying less in taxes, closing cost etc. and the buyer is not financing an extra $10,000 for the next 30 years. I mentioned how this affects every one in the transaction, Yes, the lender is assured that the home is not over inflated and that the buyer can most like afford the home they are buying, The agents, well sadly they make a little less in commission. But at the end of the day, the appraiser has done his/her job, protected the buyer, lender and the market place.
Market value or fair market value is 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 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: (1) buyer and seller are typically motivated; (2) both parties are well informed or well advised; (3) a reasonable time is allowed for exposure to the open market; (4) payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and (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.
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%.
M.C. Appraisals, Inc. is always willing to address any inquiries you might have about appraisals in Huntingtown and Calvert County.
Feel free to contact us today.