W. Earl Wilson has answers to "Frequently Asked Questions"
Define the term "Appraisal"
Define the term "Appraisal"(Back to top) The method of producing an appraisal report consists of an evaluation which forms an opinion of value. This opinion or estimate is figured through a formal method that generally utilizes three "common approaches to value". One of the methods in use is the Cost Approach, which evaluates what it would cost to replace the improvements to the house, minus depreciation and physical deterioration, adding the land value. The Sales Comparison Approach involves searching for comparable houses nearby and figuring out the value based on making a comparison of those properties to the property being appraised. Being the most commonly used approach, the Sales Comparison Approach tends to be the most accurate and best indicator of market value for a residence. The third approach is the Income Approach, which is of most importance in appraising income producing properties - it deals with estimating what an investor would pay based on the money generated by the property.
Describe what an appraiser does(Back to top) An appraiser offers a fair and credible opinion of market value, often in the context of a real estate sale. Appraisers illustate their expert investigation in appraisal reports.
What would cause me to require services from W. Earl Wilson?(Back to top) There are many reasons to order an appraisal with the most common reason being real estate and mortgage transactions. A few other reasons for ordering an appraisal report include:
How is an appraisal different than a home inspection? (Back to top)Home inspectors do not produce an opinion of value and are not appraisers. The purpose of a home inspection is to evaluate the structure of the house from foundation to top. Commonly, a home inspection report will evaluate the amenities and the requirements of the house: air conditioning (weather permitting), electrical functions, the condition of the heating system, the plumbing; then the structural integrity of the home such as the attic, visible insulation, walls, floors, ceilings, windows, then the foundation, basement and visible structures.
Is an appraisal the same as a comparative market analysis(CMA)?(Back to top) Simply put, it's like comparing Shakespeare to reality TV. What the CMA depends on are ill-defined trends. The appraisal depends on specific valid comparable sales. Also, the appraisal looks at other factors like condition, neighborhood 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 who's doing the report. Real estate agents produce CMA's, and they don't always know the whole market or bear specific competence when it comes to home valuation. The appraisal is produce 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 whereas the appraiser is bound by a code of ethics to accept a flat fee for assignments, regardless of their outcome.
What's in an appraisal report? (Back to top)Each report should reflect a supported value opinion and should document the following:
Once the report has been completed, how can I have confidence that the value indicated is accurate?(Back to top) In communicating an appraisal report, each appraiser must make sure of the following:
Who engages the services of appraisers?(Back to top) Commonly, appraisers are called upon by lenders to render a value opinion on a house involved in a loan transaction - to make sure the subject is indeed adequate collateral for the loan. Attorneys and CPAs also hire appraisers for divorce and estate settlements.
Where does an appraiser get the data used to estimate values in Arapahoe County or other areas?(Back to top) Compiling data is one of the primary tasks an appraiser performs. Data can be described as either Specific or General. Specific data is collected from the property itself; Location, condition, amenities, size and other specific data are documented by the appraiser while on site.
General data is collected from a variety of sources. Local Multiple Listing Services (MLS) provide information on recently sold homes that might be used as comparables. Tax records and other courthouse documents reveal actual sales prices in a market. Appraisers routinely need to report when a property is in a flood zone, and that information is retrieved from a FEMA data outlet such as a la mode's InterFlood product.
And last but not least, the appraiser assimilates general data from his or her past experience in creating appraisals for other properties in the same market.
Why should I hire a licensed appraiser?(Back to top) If you're making some sort of financial decision and the value of your home is relevant, you'll want an appraisal. For those selling a home, you'll want to determine the price that gets you the most profit but doesn't leave your home on the market too long; an appraisal can help with that. 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 house is often the single, largest financial asset anybody owns. Without knowing its real value, wise financial decisions are impossible.
My mortgage statement has an item on it for PMI? Can I get rid of that?(Back to top) PMI stands for Private Mortgage Insurance. It protects the lender in the event a borrower defaults on the loan and the market price of the house is less than the loan balance. 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.
How do I get ready for the appraiser?(Back to top) The first step in most appraisals is the property inspection. 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. Inside, make sure it is clutter free and that we can access things like furnaces and water heaters. In the yard, trim any landscaping so we can be free to get an accurate measurement of exterior walls.
You can make things go faster and improve the accuracy of the appraisal report by having the following things on hand:
What does "Market Value" mean?(Back to top) In real estate appraising, Market Value (as opposed to Fair Market Value) is commonly defined as:
Who has rights to the appraisal report?(Back to top) In most real estate transactions, the appraisal is ordered by the lender. While the 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 buyer is entitled to a copy of the report - it's usually included with all the other closing documents - but is not allowed 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 situations, the appraiser may stipulate 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.
Which home renovations add the most to the price?(Back to top) It really depends on the market. For example, if you live in a cold region, insulated windows can be a real plus. But they aren't as attractive in a warm-weather climate.
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 weren't far behind, returning 85%. Adding bedrooms and baths can also increase the value of your home as long as your home doesn't then become an oddball for your neighborhood in terms of size.