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Why is an appraisal required?
An appraisal is an estimate of the value of a property. An estimate of the value of the property generally refers to its fair market value. The purpose and use of appraisals include transfer of ownership, financing and credit, taxation, condemnation, insurance and many others. An appraiser is typically a state-licensed individual trained to render expert opinions concerning property values.
Certified General Appraiser and Certified Residential Appraiser?
>who the property owners are, what property is being sold and when the sale date is. In addition, you will need to disclose change of ownership, physical condition reports of the property, as well as how the reports were obtained.
The AQB has issued criteria for the Certified General Appraiser and Certified Residential Appraiser. Each has education, experience, examination and continuing education requirements. Consider working with either a Certified General or Certified Residential Appraiser. The appraiser considers three approaches to value when arriving at an opinion: sales comparison approach (formerly the market data comparison approach), cost approach and income capitalization approach. When evaluating single-family, owner-occupied properties, the sales comparison approach is most heavily weighted by an appraiser. This approach compares the subject property with other similar properties in the vicinity which have sold or are for sale. Real estate professionals also rely heavily on this approach.
Real estate agents approximate the appraisal process by conducting a Comparative Market Analysis (CMA), using the sales comparison approach to value. The accuracy of the agent's appraisal depends on the experience and skill of the agent. The CMA is not an officially recognized appraisal.
Most lenders will not lend money without an acceptable appraisal. You can be sure you are getting an expert appraisal when the appraiser is licensed or certified and is governed by the Competency Provision of the Code of Ethics of the Uniform Standards of Professional Appraisal Practice (USPAP), proclaimed by the Appraisal Foundation.
Appraisal Methods
Most appraisers use three approaches to establish the value of a property. The
Sales Comparison Approach is normally considered to be the best indication of
value for residential property.
- Sales Comparison Approach:
In this
approach the appraiser finds three to four
comparable properties in the neighborhood
which have recently sold. Ideally, these properties are within
a one-half mile radius of the subject property and
have sold within the last six months.
The appraiser compares the sold properties to the subject
property. The factors used in the comparison include
square footage, number of bedrooms and bathrooms, property
age, lot size, view, and property condition.
- Cost approach: This approach considers the value of
the land, assumed vacant, added to the cost to
reconstruct the appraised building as new on the
date of value, less the accrued depreciation the
building suffers in comparison with a new building.
- Income capitalization approach: In this approach
the potential net income of the property is capitalized
to arrive at a property value. This approach is suited to income-producing properties and is usually used in conjunction with other valuation methods. The process
of converting a future income stream into a present value is known as
capitalization.
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How much does an appraisal cost?
The cost of an appraisal varies based upon the:
- Type of appraisal: The most commonly used
appraisal is called the Uniform Residential
Appraisal Report (URAR). Some lenders may accept an
abbreviated appraisal called the "Drive By
Appraisal", which costs less than the URAR.
- Type of property: Appraisals for
single-family homes and condominiums usually cost less than
appraisals for multi-unit properties.
- Value of property: Appraisals for higher-priced homes usually cost more than appraisals for
lower-priced homes. If your home value is over
$500,000, you can expect to pay more for your
appraisal.
- Location of property: The cost of an
appraisal is affected by geographic location and
availability of appraisers. In areas where
appraisers are few, or the properties are hard to
access, appraisal costs increase.
- Use of property: Appraisals for income-producing
properties, for example, usually cost more than
appraisals for non-income-producing
properties. Rental property appraisals include
a rent survey and the property's income statement.
Appraisal fees on single-family, owner-occupied homes
under $500,000 in densely populated areas vary between $250 and $400. Fees for
similarly priced rental properties may vary between $400 and $550.
Reasons for an appraisal
Appraisals are normally ordered when you are obtaining a
loan on a property. However, there are many other reasons why you might want
an appraisal:
- To dispute your property
taxes
- To establish the
replacement cost for insurance purposes
- To settle a divorce
- To settle an estate
- To buy out a partner
- To help negotiate a
purchase price either as a buyer or as a seller
- To satisfy the IRS
- To settle a lawsuit
- To protect your rights in a condemnation case
Who owns the appraisal?
In almost every case the appraisal is owned by your mortgage company, even though you may have paid for it. This is because your mortgage company orders the appraisal on your behalf, and the appraiser lists that mortgage company on the appraisal report. Even though the mortgage company owns the appraisal, you have the right to receive a copy. It is at the mortgage company's discretion whether to give you the original appraisal.
What if I decide to use another mortgage company after the appraisal has been completed? This does not necessarily mean you will have to pay for another appraisal. Your first lender can transfer the appraisal to your new lender. Some appraisal firms may charge a small fee, however, because there is clerical work involved in editing the appraisal to reflect the new mortgage company. This fee is called an "Appraisal Retype Fee." The original mortgage company has the right to refuse to transfer the appraisal to another lender. In this event, you will need to get a new appraisal.
Can you increase the appraised value of a property?
In general you do not have much control over the appraised value of a property. The appraiser is
assumed to be neutral, objective and capable of providing an unbiased valuation
of the property. Here are some things you can do in the event
you believe the appraised property value is too low:
- Review the comparable sales used by your appraiser: Drive by the comparable sales
shown in your appraisal and compare them to yours.
Contact your Realtor® and get their opinion. You
might be able to find sales the appraiser missed.
There might be pending sales which will soon close.
When pending sales close, they might influence the
appraised value of your property.
- Check the measurements of your home:
Double check the accuracy of the appraisal report
regarding square footage, lot size, number of
bedroom/bathrooms, etc.
- Find out if any of the comparable sales were sold under distress: A foreclosure or
distress sale in your neighborhood can effect
values. If you have evidence that a comparable sale
was a distress sale, you might be able to get the
appraiser to ignore that sale, or adjust your
appraised value accordingly.
- Get another appraiser:
Consider getting a second opinion--a new appraisal by
a different appraiser. In this event, make sure you get an appraiser who is familiar
with the neighborhood.
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