 |
| |
 |
 |
Rates as Low as 3.9%
|
|
|
| |
|
 |
Lowest closing cost Guaranteed
|
|
|
| |
|
 |
60 Seconds
Approval
|
|
|
| |
| |
|
Appraisal
Basics
Appraisal Methods
When To Order an Appraisal
Appraisal To Establish Home Market
Price
Appraisal To Obtain A Loan
Helping The Appraiser
|
| |
Appraisal Basics
An appraisal of real estate is the valuation of the
rights of ownership. The appraiser must define the rights he intends to
appraise.
The appraiser does not create value, the appraiser interprets the market to
arrive at a value estimate. As the appraiser compiles data pertinent to a
report, consideration must be given to the site and amenities as well as the
physical condition of the property. An appraiser may spend only a short time
inspecting the property, however, this is only the beginning.
Considerable research and collection of general and specific data must be
accomplished before the appraiser can arrive at a final opinion of value.
Due to the many types of value, such as Fair Market Value, Insurance Value, Tax
Value and Value In Use, the need to precisely define the purpose of the
appraisal is essential.
|
| Back
To Top
|
Appraisal Methods
An appraisal is an opinion of value or the act or process of estimating value.
This opinion or estimate is derived by using three common approaches, all
derived from the market. They are:
1. Cost Approach to value is what it would
cost to replace or reproduce the improvements as of the date of the appraisal,
less the Physical Deterioration, the Functional Obsolescence and the Economic
Obsolescence. The remainder is added to the Land Value.
2. Comparison Approach to value makes use of
other "bench mark" properties of similar size, quality and location that have
been recently sold. A comparison is made to the subject property.
3. Income Approach to value is of primary
importance in ascertaining the value of income producing properties and has
little weight in residential type properties. This approach provides an
objective estimate of what a prudent investor would pay based upon the net
income the property produces.
Then, after thorough analysis of all general and specific data gathered from
the market, a final estimate or opinion of value is correlated.
|
|
|
|
When To Order an Appraisal
There are many reasons to obtain an appraisal. The
most common reason is for Real Estate and Mortgage Transactions,
but we have compiled a list of other reasons you may need to order an
appraisal:
|
| |
. to obtain a loan.
. to lower your tax burden.
. to establish the replacement cost of insurance.
. to contest high property taxes.
. to settle an estate.
. to help you make one of the largest financial decisions in your life.
. to provide a negotiating tool when purchasing real estate.
. to determine a reasonable price when selling real estate.
. to protect your rights in a condemnation case.
. to allow you to obtain a qualified appraisal report.
. because a government agency such as the IRS requires it.
. you are involved in a lawsuit.
|
|
|
|
Appraisal To Establish Home Market Price
In
the real world, very few individuals order appraisal reports to establish an
offering price or to substantiate a purchase price. At the point that an offer
to purchase (in a typical residential transaction) is made, the price has been
set by other parties, not the purchaser. The price has been determined by the
seller, who wishes to obtain the highest price possible, or the agent, who
receives a percentage of the price as compensation and often represents the
seller in the transaction.
The real estate agent will typically perform a comparative market analysis
(CMA). The appraisal laws in most states allow real estate agents to perform
CMAs without an appraiser's license or certification. A CMA is a necessary part
of the agent's preparation for a listing and consists of examining sales of
properties in the area to arrive at a listing price. The reliability of the CMA
depends upon the agent's experience and the characteristics of the property.
The agent will suggest a selling price to the seller based upon the analysis.
However, neither the seller nor the agent are bound by the results of the
analysis, and the agent is not required to follow any formal procedure in
completing the CMA. If a seller wishes to list the property at a price higher
than the price suggested by the agent, then the agent may be forced to accept
the listing at that price or risk losing a commission.
Purchasers believe that they are getting a good deal if they make an offer
lower than the listed price. But how far above the market value was the
property listed? 10%, 15%, maybe even 20% above the fair market value? A
negotiated price of 10% less than the listed price on a property that was
listed at 20% above its value is not a bargain. The agent cannot tell the
purchaser that the offered price is higher than the value, or even higher than
their own CMA. In most states, they must submit the offer to the seller.
The seller of a property may want to order an appraisal before listing the
property. Of course, the cost of the appraisal is always a deterrent,
especially if the seller knows that a buyer will pay for it when applying for a
loan. But the appraisal is often justified. The seller could lose a sale if the
property appraised for less than the sale price when appraised by the
appraiser.
|
|
|
Appraisal To Obtain A Loan
Usually,
individuals applying for a home loan are only interested in
obtaining the home loan or home equity loan and unfortunately
are not worried about the prudence of buying the property at the agreed price.
In fact, many purchasers will try to encourage appraisers to increase the
appraised value so that they can purchase the home regardless of its value.
The majority of real estate appraisals are requested by mortgage
companies to validate the property's purchase price for loan purposes. Except
for periods of very low interest rates when everyone is refinancing,
most loans are for the purchase of real estate and ordered after a sale price
is negotiated. Purchasers mistakenly assume that mortgage companies
are looking after their interests in the purchase transaction.
The law states that if the mortgage company orders the
appraisal, the appraiser is responsible only to the mortgage company.
We expect mortgage companies to be prudent and they should be,
but being prudent is protecting their interest, not necessarily the
purchaser's. The mortgage company's position:
|
|
|
|
. It has two sources of repayment:
the purchaser's income and the property.
. The responsibility to repay the loan is not based upon the property's value,
so the purchaser is obligated to pay the note even if the
property value declines to zero.
. The loan may be insured or guaranteed by a government agency.
. The government does not promise to pay the purchaser's debt if the property
value is wrong.
. If the loan is greater than 80% of the value, a portion of the loan may be
insured by a private mortgage insurer.
. There is no decrease in risk for the purchaser regardless of the
loan-to-value ratio. The investment by the purchaser is the
same, a mixture of personal cash and a loan that must be repaid.
|
|
| |
Helping The Appraiser
Once
you have selected an appraiser, be prepared to answer questions and provide
requested information
|
| |
|
. What is the purpose of the
appraisal?
. When is the required completion date of the appraisal?
. Is property listed for sale and if so, for how much and with whom?
. Is there a mortgage? If so, with whom, when placed, for how much, type of
mortgage [FHA, VA etc.], interest rate, and any other types of
financing.
. What personal property, such as appliances, are included ?
. If it is an income producing property, provide a breakdown of income and
expenses for the last year or two and a copy of leases.
. Provide a copy of deed, survey, purchase agreement or other pertinent papers
pertaining to the property.
. Provide a copy of current real estate tax bill, statement of special
assessments, balance owing and on what [sewer, water, etc.].
|
|
|
|
|
