Appraisals: Frequently Asked Questions

What is an Appraisal?

An appraisal is an estimate of value. When the purpose for the appraisal is for a Federally Insured Real Estate loan transaction, the value must be determined by an individual that is licensed and/or certified by the state were the property is located. Other types of appraisals, which do not require an appraiser to be licensed, include Personal Property, Tax Appeals, Estates, Divorce, PMI Removals, Relocation and Business Appraisals. These type of appraisals rely heavily on the appraisers education, qualifications and experience level for an accurate estimate of value.

The methodology used and the conclusion of the appraisal assignment is conveyed to you in an form a written report (see appraisal forms).  Depending on your needs, this report may be long or short and it can be presented as a self-contained, summary, or restricted report in accordance with your request and the type of property being appraised.

Why are Appraisals necessary?  

Banks, Credit Unions, Insurance Companies, Government and Legal Institutions rely on appraisals to determine value. In the case of a mortgage, this value also assist lenders to evaluate any risk associated with funding a loan. The appraiser acts an impartial third party in the valuation process. It is ultimately the opinion of the professional appraiser that helps to determine the risk the lender is willing to take the risk or if the buyer is over-paying for the property.

What is the Real Estate Appraisal Process?

Whether the purpose of an assignment is to estimate a defined value of a specific track of real property, residential contents or business valuations we can help.  

As real estate appraisers, our duty is to observe and report the features and condition of the property, as of the date of inspection. Future projects and planned improvements are not factored into the valuation process.

The first step in the appraisal process is to obtain an accurate square footage of the property. The appraiser measures the exterior perimeter of the property to calculate its Gross Living Area (GLA). Areas such as garages, screened porches, sheds, etc are classified as Non-living areas and therefore excluded from the GLA. However, they are valued separately - based on market demand.

The Uniform Standards of Appraisal Practices (USPAP) requires appraisers to value any fixtures permanently attached to the real property. Removable fixtures such as above ground pools and playground equipment are not considered permanent structures. The contributory value of items such as a in-ground swimming pool is based on market demand, and depending on the properties location may result in minimal or no value at all.

What happens during the Inspection?

The mission of a real estate appraiser is to inspect the subject property and report its findings to the client, which is most cases it is a lender. During the inspection process the appraiser gathers data, makes a sketch and observe upgraded and features such as the number of bedrooms, bathrooms, the location, etc., to ensure that they really exist and are in the condition a reasonable buyer would expect them to be. The appraiser also looks for need repairs and improvement which could affect the marketability and value of the property.

How the appraised value of my home determined?                         

Once the site inspection is completed, the appraiser analyzes the data and uses two or more approaches to determine the current value of real property: a cost approach, a sales comparison and, in the case of a rental property, an income approach. A comprehensive written report detailing our opinions, findings and our estimate of value is then issued to the client.

Sales Comparison
The most commonly used approach to value is the sales comparison approach. Our appraisers know the neighborhoods in which they work. They understand the value of certain features to the residents of that area such s traffic patterns, the school zones, the busy throughways; and they use this information to determine which attributes of a property will make a difference in the value. With this data in hand, our appraiser researches recent sales in the vicinity and finds properties which are ''comparable'' to the subject being appraised. The sales prices of these properties are used as a basis to begin the sales comparison approach.

Using knowledge of the value of certain items such as square footage, extra bathrooms, hardwood floors, fireplaces or view lots (just to name a few), the appraiser adjusts the comparable properties to more accurately portray the subject property. For example, if the comparable property has a fireplace and the subject does not, the appraiser may deduct the value of a fireplace from the sales price of the comparable home. If the subject property has an extra half-bathroom and the comparable does not, the appraiser might add a certain amount to the comparable property.

Cost Approach
When using the cost approach, our appraiser uses information on local building costs, labor rates and other factors to determine how much it would cost to construct a property similar to the one being appraised. This value often sets the upper limit on what a property would sell for. This process answers the question: “Why would you pay more for an existing property if you could spend less and build a brand new home instead?” While there may be mitigating factors, such as location and amenities, these are usually not reflected in the cost approach.

Income Approach:
In the case of income producing properties - rental houses for example - the appraiser may use a third approach to valuing the property. In this case, the amount of income the property produces is used to arrive at the current value of those revenues over the foreseeable future.

Reconciliation
Combining information from all approaches, the appraiser is then ready to stipulate an estimated market value for the subject property. It is important to note that while this amount is probably the best indication of what a property is worth, it may not be the final sales price. There are always mitigating factors such as seller motivation, urgency or ''bidding wars'' that may adjust the final price up or down. But the appraised value is often used as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. The bottom line is: an appraiser will help you get the most accurate property value, so you can make the most informed real estate decisions.

Why is my basement square footage not included in the Appraisal?

One of the most frequently asked questions by homeowners is “Why is my basement area not included in the appraisal?” It is important for homeowners to understand that basement calculations are not include

The answer is, in most developments basements are constructed below ground, and some neighborhoods homes do not have basements at all. As a result, the contributory value of an unfinished basement is minimal at best. On the other hand, a finished basement typically adds value to the property, and while is calculated separately, the local market area typically dictates the value of a finished basement.

How long does an appraisal take?

The first step in the appraisal process is the site inspection. Depending on the size property and/or complexity of the assignment, a typical site inspection of the real property being appraised can take from anywhere from fifteen minutes to several hours.

Once the site inspection is complete, the appraiser spends time surveying the market area taking photos of comparable sales of properties used in his or her analysis. The data gathered and analyzed and a final report is completed for submission to the Client – usually the mortgage company. Depending on the lenders requirements, there are various types of reports that may be necessary to complete the assignment. (Click here for types of appraisal forms).  

Where does an appraiser get the information needed to complete an appraisal?

The appraiser gathers data from a wide variety of sources that is most relevant to the assignment. The most commonly used resources include the (MLS) Multiple Listing Service, tax assessors records, real estate professionals, county courthouse records, private public record data vendors, interviews with sellers and buyers, appraisal data co-operatives and his or her own personal knowledge or office files from previous appraisals. The quality and reliability of each piece of information is considered by the appraiser.

An Appraisal vs  Home Inspection

If a home inspection is performed prior to the appraisal and the information provided to the appraiser a more useful appraisal may result should there be substantial defects in construction or major repairs required. This information may be particularly helpful if one or both of parties requesting the appraisal may end up in possession of the property as may be the case with property included in a divorce settlement or judgment.

What improvements add the most value to my home?

Most real estate sales professionals believe that upgrade and improvement to Kitchen and bath area will increase the value of the home. From an appraisers prospective, any attached improvement which increases the GLA of the property such as Sunroom, Morning Room, Additional Bedroom, In-law suite, etc will have a greater impact on the value of your home.  

If my appraisal comes out higher than my tax value, could my real estate taxes go up?

Absolutely not!. The appraiser is required to maintain confidentiality with the client, which would typically be you (if you undertook the appraisal) or the bank (in a mortgage related appraisal), not the local tax authorities.

Appraisal Services that we provide

In our complex society, you may need and use the services of a professional real estate appraiser for a variety of reasons. Depending upon an appraiser's designation and qualifications, he or she can provide some or all of these services: Appraisals - Residential or Commercial; Counseling and Consulting; Evaluations; Expert Witness Testimony; Litigation Preparation; Feasibility Studies; Market Analysis; Market Rent & Trend Studies; Tax Assessment Review and Advice or Zoning Testimony.

Know Your rights in the appraisal process!

Under the Equal Credit Opportunity Act, your lender must provide you with a copy of the appraisal report upon your written request. If you are dissatisfied with any information contained in your appraisal report, you should contact your lender immediately.