The appraisal process is an evaluation that leads to a professional opinion of value. The appraiser utilizes a formal method that consists of three main components:
The cost approach estimates what the cost would be to build an equivalent of your property, minus depreciation, plus the value of the land. Essentially, it is a breakdown of what it would cost to rebuild your property today if it were destroyed.
Sales Comparison Approach
The sales comparison approach figures a comparison to comparable properties nearby. It is the most common approach to finding the value of a property and is generally the most precise indicator of worth for a residence.
The income approach estimates what an investor would pay based on the capital produced by the property. This is the most important method when appraising income-producing properties.
Appraisers serve to provide an unbiased, professional opinion of value to assist with financial transactions. They are typically employed by lenders to estimate the value of real estate involved in a loan transaction. Appraisers can also provide opinions in litigation cases, tax matters, and investment decisions.
Contrary to popular belief, appraisals are not limited to just real estate or mortgage transactions. Other reasons for purchasing an appraisal can include:
Receiving a loan.
Lowering your tax burden.
Showing the replacement cost of PMI.
Fighting high property taxes.
Taking care of an estate.
Giving yourself an edge when purchasing real estate.
Determining an honest price when selling real estate.
Protecting your rights in a condemnation case.
Dealing with a lawsuit.
Home inspectors do not come to an opinion of value and are not appraisers. The point of a home inspection is to investigate the structure of the property from basement to rooftop. The usual home inspector's report will contain an evaluation of the condition of the property’s heating system, central air conditioning system (temperature permitting), interior plumbing and electrical systems; the roof, attic, and accessible insulation; walls, ceilings, floors, windows and doors; the foundation, basement, and visible structure.
Each report must reflect a credible estimate of value and identify the following:
The client and other intended users.
The intended use of the report.
The purpose of the assignment.
The type of value reported and the definition of the value reported.
The effective date of the appraiser's opinions and conclusions.
Relevant property characteristics, including location attributes, physical attributes, legal attributes, economic attributes, the real property interest valued, and Non real estate items included in the appraisal, such as personal property, including trade fixtures and 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 used to complete the assignment.
In most real estate transactions, the appraisal is ordered by the lender. While the homebuyer 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 homebuyer 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 homeowner 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 homeowner can use the appraisal for any purpose.
The first step in most appraisals is the home inspection. During this process, the appraiser will measure your home, determine the layout of the interior, 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 is to help 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.
To become a real property appraiser, you will need to meet the minimum requirements set by the Appraisal Qualifications Board (AQB) in the following three areas:
State licensing or certification exam
Real estate appraisal utilizes your personal skills, math skills, and your detective skills. Most appraisers are their own bosses, which means you can have the free time to spend with the family by letting you set your own hours. Many appraisers think of it as the best job in the world, and you can do it too.
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