Frandsen Appraising has answers to "Frequently Asked Questions"
What is an appraisal?
What is an appraisal?(Back to top) An appraiser performs an estimation that leads to an opinion of value. This opinion or estimate is concluded using a formal process that typically utilizes three "common approaches to value". The Cost Approach is one of the methods that real estate appraisers use to find value; it involves concluding what the improvements would cost less physical deterioration, plus the land value. Easily the most common approach in figuring the value of a home is the Sales Comparison Approach which involves concluding a comparison to similar houses nearby. Being the most popular approach, the Sales Comparison Approach tends to be the most precise and best indicator of market value for a residential property. The third approach is the Income Approach, which is the most important method in appraising income producing properties - it involves estimating what an investor would pay based on the money produced by the property.
What does an appraiser do?(Back to top) An appraiser forumlates an impartial and well justified opinion of market value, to be used in making real estate transactions. Appraisers illustate their investigation in appraisal reports.
What would cause me to require your services?(Back to top) There are a lot of reasons to order an appraisal with the most common reason being real estate and mortgage transactions. Some other reasons for purchasing an report include:
Is an appraisal the same as a home inspection? (Back to top)The appraiser is not a home inspector and does not do a complete home inspection. The point of a home inspection is to evaluate the structure of the property from foundation to attic. Commonly, a home inspection report will explain 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, exposed insulation, walls, floors, ceilings, windows, then the foundation, basement and other visible structures.
Is an appraisal the same as a comparative market analysis(CMA)?(Back to top) To be blunt, it's like comparing opera to country. The CMA uses market trends to conduct most of their business. An appraisal relies on comparable sales that can be validated by records. In addition, the appraisal checks other factors like condition, location and construction costs. The CMA will provide a non-specific figure. An appraisal delivers a defensible and carefully documented opinion of value.
The person creating the report is hands down the biggest difference between a CMA and an appraisal. Real estate agents produce CMA's, and they don't always know the whole market or have specific competence when it comes to home valuation. A certified, Utah licensed professional who has formed a career on valuing real estate in and around Salt Lake County is behind the appraisal. Moreover, the appraiser is an unbiased party, with no vested interest in the value of a home, unlike the agent, who gets a commission based upon the value of the home.
What are the contents of an appraisal report? (Back to top)The main purpose of an appraisal report is to provide a value opinion, and depending on the scope of the report, you'll usually see the following:
Once the report is done, how can I have a guarantee that the final number is valid?(Back to top) In communicating an appraisal report, each appraiser must make sure of the following:
Who are an appraiser's customers?(Back to top) Mortgage lenders are an appraiser's typical customer, using their services to ensure a home involved in a mortgage transaction is enough to cover a loan balance in the case of default. Appraisers also provide opinions for legal settlements, tax matters and investment decisions.
Where does an appraiser get the information used to estimate values in Salt Lake County or other areas?(Back to top) Gathering information is one of the primary roles of an appraiser. Data can be divided into Specific or General. Specific data is from the home itself; Location, condition, amenities, size and other specific data are documented by the appraiser during an inspection.
General data is received from a many places. To research recently sold homes to be used as "comps", an appraiser will typically use the local Multiple Listing Service. To verify actual sales prices, we research tax records and other public documents. Flood zone data is gathered from FEMA data outlets, such as a la mode's InterFlood system.
And last but not least, the appraiser assembles general data from his or her past experience in doing assignments for other houses in the same market.
What can a full appraisal do for me?(Back to top) An appraisal is a valuable tool anytime the value of your home is pertinent to some financial decision. When selling your home, an appraisal helps you set a price that maximizes profit and reduces time on the market. 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. Simply put, a home is often the single, largest financial asset anybody owns. Knowing its true value means you can make the right financial decisions.
What exactly is PMI and how can I get rid of it?(Back to top) PMI stands for Private Mortgage Insurance. This additional plan guards the lender in case a borrower defaults on the loan and the value of the house is lower than what is owed on the loan. Once you can prove the amount you owe on your home is less than 80% of the home's market value, you can make a case to your lender to drop the PMI.
Does the appraiser need anything from the homeowner in advance?(Back to top) We begin with an inspection of the home. What this entails is the appraiser, after setting up an appointment, personally going through the home - recording the layout of the rooms, taking photos and documenting the general status of its amenities. The best thing you can do to help is make sure the appraiser has easy access to the exterior of the house (gates aren't locked, etc). Trim any bushes and relocate any items that would make it difficult to measure the structure. On the inside, make sure the appraiser can get to appliances like furnaces and water heaters.
You can make things go faster and improve the quality of the appraisal report by having the following things on hand:
How does an appraiser define "Market Value"?(Back to top) In real estate appraising, Market Value is commonly defined as:
Who actually owns the appraisal report?(Back to top) For mortgage transactions, the lender requests the appraisal, either directly or through a third party. Even though it's the buyer that eventually pays for the report, the lender is the intended user. The buyer is certainly 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 engaging the appraiser for things outside securing a mortgage. In these cases, the appraiser may state the purpose of the appraisal; 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.
Are some home improvements more worthwhile than others?(Back to top) Like all things real estate, this is dependent on a home's location. For example, while quality appliances are attractive, a $7000 built-in refrigerator won't pay off in a neighborhood of moderately priced homes
No matter where you go, however, renovating a kitchen is almost always a safe move. 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%. On the contrary, work that may not increase your value would be painting just for the sake of redecorating.