What is an appraisal?

In the simples of terms an appraisal is an opinion of value or the act of process of estimating value. The opinion of value is based on more than just the licensed appraisers years of experience, it is based on a systematic approach which utilizes three different approaches. The three methods used are the Cost Approach, the Comparison Approach, and the Income Approach. Contrary to what many think, the home inspection is only a small portion of the appraisal process. After an inspection of the subject property and the comparable properties the appraiser gathers and analyzes a range of relevant information which is then applied to the three approaches to value. Only after considering and exhausting all methods of valuation does the appraiser reconcile the analysis and data into an opinion of value. Additionally, in the case of a formal appraisal, the opinion, analysis, and data are presented in a written appraisal report.

Why do you need an appraial?

An appraisal is a powerful tool that can be used by homeowners, home buyers and sellers, assessors, attorneys, and investors for a variety of purposes including: PMI Removal, Purchase and Sales, Refinance, Property Tax Assessments, Estate Planning, Divorce, and Feasibility or Land Utilization Studies.

What certifications does an appraiser need?

Certifications are governed on both the state and federal levels. The Appraisal Foundation, a non-profit organization established two boards, the Appraiser Qualifications Board (AQB) and the Appraisal Standards Board (ASB). The AQB establishes the education requirements and examination criteria while the ASB defines the accepted standard of the profession. All appraisers are required to be certified by the individual states they practice in. The states mandate the minimum requirements which must meet or exceed the standards set by the AQB and ASB.

What does an appraiser do?

An appraiser’s fundamental role is to provide an unbiased professional opinion of market value to be used in making real estate decisions. The appraiser presents their analysis in the form of an appraisal report.

Who does the appraiser work for?

Appraiser perform their valuation services for the clients who hired them. Typically this would be the lender or other parties involved in a loan transaction. However, the client is any individual or entity who needs a professional opinion of value for a variety of reasons including estate planning, litigation, divorce, feasibility studies, employee relocation, foreclosure evaluation, and tax assessment or abatement.

How long does an appraisal take?

An appraisal has many components including inspection, research, and reporting. Prior to the inspection the appraiser can spend a significant amount of time on research gathering information about the subject property, the neighborhood, as well as comparables. The actual inspection of the property can take anywhere from a half hour to several hours depending on a variety of factors. After the inspection the appraiser will tour the neighborhood and comparable properties. Finally, the appraiser utilizes the valuation methods to arrive at an opinion of value and completes the report. The entire process can take anywhere from a half a day to a week or more depending on the size and complexity.

Who owns the appraisal?

The real estate appraisal report is owned by the client which would be defined as the individual or entity that hires the appraiser. In the majority of real estate transactions the client is the lending institution and owns the appraisal as well as the right to use it. Although the homeowner pays for the appraisal, the appraiser is obligated to share their findings exclusively with the client. Also, an appraisal report is created for a specific use, and although the purchaser typically receives a copy from the lender they are not entitled to use it for any other purpose.

How is an appraisal different from an inspection or CMA?

Appraisals, Inspections, and CMAs are three distinctly different services. A home inspection is an evaluation and report of a property’s physical condition. It is a tool to determine the safety and problem areas of the structure, systems, and components of a home. An appraiser will take into account the condition of the property in addition to the other research he will perform. However, the main focus of an appraisal is to arrive at an opinion of value. More similar to an appraisal, a CMA, or Comparative Market Analysis, is a tool used by real estate agents to assist sellers in determining a listing price. The CMA utilizes recent sales and/or current listings of similar properties to arrive at an estimated value. While the goal of a CMA is similar to an appraisal the methods, purpose, and tools used are vastly different. An appraisal is performed by a certified valuation professional and utilizes many methodologies to arrive at an opinion of value.

Who pays for the appraisal?

Appraisals are ordered for many reasons either by individuals or organizations that directly pay for the service. However, in the case of a home purchase, an appraisal is typically required as a component of the mortgage process. In that case the appraisal is ordered by the lending institution and the fee is typically paid for by the home buyer as a part of their closing costs. The lending institution determines the terms and condition for payment and may pay the appraiser directly or require the appraiser to collect the fee from the purchaser.