The following section contains
answers to a few frequently asked questions
concerning the appraisal process. This information
is invaluable to anyone who is, or plans
to be, engaged in a real estate transaction
including buying, selling, and home ownership
in general. For more detailed information
select any of the sub menus from this section.
What exactly is an
appraisal?
An appraisal is a thought process leading to an opinion of value. This opinion, or estimate, is derived through a formal process that typically uses the three ''common approaches to value''. These approached are:
Cost Approach - Determined by using the cost to replace the improvements, less physical deterioration and other factors, plus the land value.
Sales Comparison Approach - This approach involves making a comparison to other similar, nearby properties which have recently sold. The sales comparison approach is normally the most accurate and best indicator of value for a residential property and thus the most commonly used.
Income Approach - This is approach is of most importance in appraising income producing properties. It involves estimating what an investor would pay based on the income produced by the property.
Why do you need a professional
appraisal?
There are many reasons to obtain an appraisal
with the most common reason being real estate
and mortgage transactions. 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 anyone will own. Knowing its true
value ensures that you make the right financial
decisions.
What is market value?
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.
What is the difference between
an appraisal and a home inspection?
The appraiser is not a home inspector nor does he or she do a complete home inspection. An appraiser provides a professional, unbiased opinion of market value to be used in making real estate decisions. Appraisers present their formal analysis in appraisal reports.
An inspection is a third-party evaluation of the accessible structure and mechanical systems of a house, from the roof to the foundation. The standard home inspector's report will include an evaluation of the condition of the home'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.
Who Actually Owns the Appraisal
Report?
In most real estate transactions, the appraisal is ordered by the lender. While the home buyer pays for the report either directly or 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.
What exactly is PMI and how can
you get rid of it?
PMI stands for Private Mortgage Insurance.
It insures a lender against loss on homes
purchased with a down-payment of less than
20%. Once your remaining loan balance reaches
80% of your homes current appraised value
you can eliminate the PMI and start enjoying
a $50 to $100 per month in savings! The
80% is only a guideline and may vary from
lender to lender. A new federal law was
passed in 1999 mandating the automatic removal
of PMI on new loans that were originated
after July of 1999, however it does not
apply to loans made prior to July of 1999.
In this case it is up to you to contact
your lender and see what their specific
procedures are for removal of the PMI insurance.
