Smith Appraisal Services, Inc. has answers to "Frequently Asked Questions"

Smith Appraisal Services, Inc. is always prepared to elaborate on any inquiries you might have about appraisals in Beach Park and Lake County. Contact us today to see how we can help you with your valuation problems.

What is an appraisal?
What does an appraiser do?
Why would someone order a real estate appraisal?
What is the difference between an appraisal and a home inspection?
What is the difference between an Appraisal and a Comparative Market Analysis (CMA)?
What does the appraisal report contain?
Once the report is done, what assurance is there that the value indicated is accurate
How are appraisers certified?
Who do appraisers work for?
Where does an appraiser get the information used to estimate value?
Why do I need a professional appraisal?
What exactly is PMI and how can I get rid of it?
How do I get ready for the appraiser?
What is "Market Value?"
Who Actually Owns the Appraisal Report?
Which home renovations add the most to the price?

What is an appraisal? (Back to top)

An appraiser provides an estimation that generates an opinion of value. There are three "common approaches to value" which assists the appraiser come to this opinion or estimate. One of the three is the Cost Approach - which is how much capital required to replace the improvements, less physical deterioration and other factors, plus the land value. The most common approach in figuring the worth of a house is the Sales Comparison Approach which concerns making a comparison to similar houses nearby. Generally speaking, the Sales Comparison Approach is the most definite indicator of value of a residental property. One of the least common approaches in appraising residential properties is the Income Approach, which is mainly used to figure the worth of a property based on what an investor would pay based on the income produced by the building. Click here for a more extensive explanation of the process of getting an appraisal: What is an appraisal?

What does an appraiser do? (Back to top)

The most important point of an appraiser's job is to produce an unbiased, professional opinion of market value to assist with financial transactions. Appraisers show their formal analysis in appraisal reports.

What are the reasons for ordering a home appraisal? (Back to top)

There are a lot of reasons to obtain an appraisal from Smith Appraisal Services, Inc. with the usual reason being real estate and mortgage transactions. Other reasons for getting an appraisal report include:

To obtain a loan.

If you would like to lower your property tax burden.

To establish the replacement cost of Primary Mortgage Insurance.

To challenge inflated property taxes.

To deal with an estate.

To provide you a negotiating tool when purchasing real estate.

To find a reasonable sales price when selling real estate.

To defend your rights in a condemnation case.

Because an official agency such as the IRS requires it.

It's possible you could have to deal with being in a lawsuit - an appraisal will definitely help.

For a more extensive explanation of the appraisal process click here.

What is the difference between an appraisal and a home inspection? (Back to top)

Appraisers do not do complete home inspections and are not home inspectors. An inspection is a third-party investigation of the accessible structure and electrical and mechanical systems of a property, from the roof to the bottom. For the most part, a home inspection report will evaluate the amenities and the requirements of the house: air conditioning (weather permitting), electrical systems, the condition of the heating system, the plumbing; then the structural capacity of the home such as the attic, visible insulation, walls, floors, ceilings, windows, then the foundation, basement and visible structures.

What is the difference between an Appraisal and a Comparative Market Analysis (CMA)? (Back to top)

Simply, they share nothing in common. The CMA uses market trends to create most of their business. An appraisal relies on comparable sales that can be verified by records. In addition, the appraisal verifies other factors like condition, neighborhood and replacement costs. A CMA delivers a "ball park figure." Being a documented and carefully investigated opinion of value, appraisals are defensible and stand up in legal situations.

But the biggest difference is the person behind the report. Real estate agents, who may not have a true grasp of valuation methods or the entire market, create CMA's. The appraisal is created by a licensed, certified professional who makes a living out of valuing properties. Likewise, the agent has a vested interest in the property's selling price - their commission - whereas the appraiser is bound by a code of ethics to collect only a flat sum for assignments, regardless of their outcome.

What does the appraisal report contain? (Back to top)

The main objective of an appraisal report is to provide a value opinion, and depending on the scope of the report, you'll usually see the following:

Who engaged the appraiser and other intended users.
How the appraisal is supposed to be used.
The appraisal's purpose.
Precisely what "value" attribute is being reported and what that value means.
The effective date of the appraisal.
Characteristics of the property that have a bearing on the value, including: location, physical description, legal attributes, economic attributes, the property rights in question, and non-real estate items included in the valuation, such as personal property, items that are more or less permanently installed and even 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 considered while working up the assignment.

For a more detailed view of all that goes into an appraisal report click here: Sample Appraisal Report

Once the assignment is done, what guarantee is there that the final number is veritable? (Back to top)

In the documentation of an appraisal, each appraiser must make sure of the following:

The appraisal contained an apropos analysis of the data.

That significant errors of omission or commission were not committed individually or collectively.

That appraisal services were provided in a careful and consciencous fashion.

The final appraisal report was easy to explain, legitimate and defensible.

To become a state licensed appraiser, there are education requirements as well as on the jobexperience that must be logged - all with the end goal of gaining the skills required to provide unbiased value opinions. Plus, appraisers must stick to a strict industry code of ethics and respect national standards of practice for real estate appraisal. The guidelines for carrying out an appraisal and communicating its results are guaranteed by enforcement of the Uniform Standards of Professional Appraisal Practice (USPAP).

How are appraisers certified? (Back to top)

Licensing and certification is achieved through coursework, tests and practical experience. Once licensed, he or she is required to complete continuing education courses in order to keep the license up to date. To see the specific requirements for any state click here.

Who do appraisers work for? (Back to top)

Typically, appraisers are hired by lenders to estimate the value of a house involved in a loan transaction. Appraisers also provide opinions for legal settlements, tax matters and investment decisions.

Where does an appraiser get the information used to estimate value? (Back to top)

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 a la mode's 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.

Why do I need a professional appraisal? (Back to top)

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.

What exactly is PMI and how can I get rid of it? (Back to top)

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. For a detailed discussion of PMI and how to get rid of it click here: What is PMI and how to get rid of it

How do I get ready for the appraiser? (Back to top)

The first step in most appraisals is the home inspection. During this process, the appraiser will come to your home and measure it, determine the layout of the rooms inside, confirm all aspects of the home's general condition, and take several photos of your house for inclusion in the report. The best thing you can do to help is make sure the appraiser has easy access to the exterior of the house. Trim any bushes and move any items that would make it difficult to measure the structure. On the inside, make sure that the appraiser can easily access items like furnaces and water heaters.

The following Items, if available, will help your appraiser to provide a more accurate appraisal in a shorter period of time:

A survey of the house and property.

A deed or title report showing the legal description.

A recent tax bill.

A list of personal property to be sold with the house if applicable.

A copy of the original plans.

What is "Market Value?" (Back to top)

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.

Who Actually Owns the Appraisal Report? (Back to top)

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.

Which home renovations add the most to the price? (Back to top)

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%.