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- Why is an appraisal
required?
- Appraisal Methods
- How much does an
appraisal cost?
- Reasons for an appraisal
- Who owns the appraisal?
- Can you increase the
appraised value of a property?
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.
Authorized by Congress, The Appraisal Foundation
sets minimum standards for licensed appraisers. The Foundation
is the parent organization of the Appraiser Qualifications
Board (AQB). States are required to implement appraiser
certification requirements which are at least as rigorous
as those issued by the AQB.Certified General Appraiser and
Certified Residential Appraiser.
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.
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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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The cost of an appraisal varies based upon
the following factors:
- 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.
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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
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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.
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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 RealtorŪ 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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