Michael Shank has answers to "Frequently Asked Questions"
Define the term "Appraisal"
Define the term "Appraisal"(Top) The appraisal process is an estimation that produces an opinion of value. This opinion or estimate is discerned through a formal process that usually utilizes the three main "common approaches to value". The Cost Approach is one of the processes that real estate appraisers use to find the value of a house; it involves finding what the improvements would cost minus physical degradation, adding the land value. The most common approach in figuring the value of a house is the Sales Comparison Approach which concerns figuring a comparison to comparable homes nearby. Being the most common approach, the Sales Comparison Approach tends to be the most precise and best indicator of market value for a home. The Income Approach is primarily used for figuring out the market value of income-producing properties based on what an investor would pay based on the amount of income a property produce.
What does an appraiser do?(Top) An appraiser produces a professional, unbiased assessment of market value, in the support of real property exchanges. Appraisers demonstrate their conclusions in appraisal reports.
What are the reasons I would need a real estate appraisal?(Top) There are many reasons to obtain an appraisal with the most common reason being real estate and mortgage transactions. Other reasons for getting an appraisal include:
My agent performed a CMA for me. Is that the same as an appraisal?(Top) To be blunt, it's like comparing sugar and saccharin. The CMA uses market trends to conduct most of their business. An appraisal is based on comparable sales that can be proven by public record. Area and building costs are also important in an appraisal. A CMA delivers a "ball park figure." An appraisal delivers a defensible and carefully documented opinion of value.
The credentials of the person behind the report is frankly the biggest difference between a CMA and an appraisal. Real estate agents, who may not have a complete understanding of valuation methods or the entire market, create CMA's. The appraisal is produce by a licensed, certified professional who makes a living out of valuing properties. Further, the appraiser is an independent party, with no conditional interest in the property's value, unlike the real estate agent, whose income is tied to the value of the home.
Once the assignment has been delivered, what guarantee is there that the value conclusion is accurate?(Top) In the documentation of an appraisal, each appraiser must make sure of the following:
Who employs appraisers?(Top) Typically, appraisers are employed by mortgage lenders to estimate the value of a home involved in a loan transaction - to make sure the subject is truly 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 Clark County or other areas?(Top) One of the most important activities of an appraiser is to gather data. Data can be divided into Specific or General. Specific data is collected from the home itself; Location, condition, amenities, size and other specific data are gathered by the appraiser while on site.
General data is received from a many sources. Local Multiple Listing Services (MLS) have information on recently sold homes that might be used as comparables. Tax records and other courthouse documents reveal actual sales prices in a market. Flood zone data is available from FEMA data outlets, such as a la mode's InterFlood service.
And most importantly, the appraiser assembles general data from his or her collective knowledge gained from doing assignments for other properties in the same market.
Why do I need a professional appraisal?(Top) An appraisal is a worthwhile whenever the value of your home is pertinent to some financial decision. For those selling a home, you'll want to figure out the price that gets you the most profit but also ensures you don't have to wait too long for a buyer to show up; 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. Don't make decisions in the dark with a professional appraisal.
What exactly is PMI and how can I get rid of it?(Top) PMI is an acronym for Private Mortgage Insurance. This added plan covers the lender in case a borrower doesn't pay on the loan and the value of the house is less than the balance of the loan. You can have your PMI dropped once you've achieved 20% equity in your home through appreciation and principal payments.
Does the appraiser need anything from me in advance?(Top) The first step in most appraisals is the property 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. Inside, pick up any clutter and make sure we can get to things like furnaces and water heaters. In the yard, trim any landscaping so we can be free to get an accurate measurement of outside walls.
To help speed things along as well as ensure a more accurate report, attempt if possible to have the following items:
How does an appraiser define "Market Value"?(Top) In real estate appraising, Market Value is commonly defined as:
Does the appraisal belong to the bank or the consumer?(Top) In most real estate transactions, the appraisal is ordered by the lender. Even though it's the buyer that eventually pays for the report, the lender is the intended user. The buyer is entitled to a copy of the appraisal - 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.
It's different when it's the homeowner engaging the appraiser for things outside securing a mortgage. In these situations, the appraiser may define 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.
Are some home improvements more worthwhile than others?(Top) It really depends on the market. For example, adding a central air conditioner in to a home in the South may add significant value, while putting one in a home near the Pacific Northwest might not have much impact.
As a rule, the best ROI from renovating a home comes in the kitchen. One recent study revealed that putting $20,000 into a kitchen remodel would add about $17,500 to the value of the home - or about an 88% return on investment. Bathrooms weren't far behind, yielding 85%. Adding bedrooms and baths can also help the value of your home (when done well) as long as your home doesn't then become an oddball for your neighborhood in terms of size.