Frequently Asked Questions

What is an appraisal?

What does an appraiser do?

Why would a person need a home appraisal?

What is the difference between an appraisal and a home inspection?

What is the difference between an Appraisal and a Comparative Market?

What does the appraisal report contain?

After completing the report, what assurance is there that the value indicated is valid?

How are appraisers certified?

Whom do appraisers work for?

Where does an appraiser get the information used to estimate value?

Why do I need a professional appraisal?

What PMI and how can I get rid of it?

How do I get ready for the appraiser?

What is ''Market Value?''

Who Actually Owns the Appraisal Report?

Which home renovations add the most value to the price?

Q: What is an appraisal?
A: An appraisal is a thought process leading to an opinion of value. This opinion or estimate is arrived at through a process that typically uses three common approaches to value. They are the Cost Approach - which is the cost to replace the improvements, less physical deterioration and other factors, plus the land value. There is the Sales Comparison Approach - which involves making comparisons to similar, nearby properties, which have recently sold. The Sales Comparison Approach is usually the most accurate and best indicator of value for a residential property because it reflects the actual "sold" values, rather than the "listed" values. The third approach is the Income Approach , which is of most importance in appraising income-producing properties - it involves estimating what an investor would pay based on the income produced by the property.[Back]

Q: What does an appraiser do?
A: An appraiser provides a professional, unbiased opinion of market value, to be used in making real estate value decisions. Appraisers present their formal analysis in appraisal reports. [Back]

Q: Why would a person need a home appraisal?
A: There are many reasons to obtain an appraisal with the most common reason being real estate and mortgage transactions. Other reasons for ordering an appraisal include:

• Obtain a loan.
• Lower your property tax burden.
• Establish the replacement cost of insurance.
• Contest high property taxes.
• Settle an estate.
• Provide a negotiating tool when purchasing real estate.
• Determine a reasonable price when selling real estate.
• Protect your rights in a condemnation case.
• A government agency may require it.
• Involvement in a lawsuit. [Back]

Q: What is the difference between an appraisal and a home inspection?
A: The appraiser is not a home inspector nor does he/she provide a complete home inspection. An inspection is a third-party evaluation of the accessible structure and mechanical systems of a house, from the roof to the foundation. The standard home inspector's report will include an evaluation of the condition of the home's heating system, central air conditioning system (temperature permitting), interior plumbing and electrical systems; the roof, attic, and visible insulation; walls, ceilings, floors, windows and doors; the foundation, basement, and visible structure. An appraisal provides an opinion or estimate of value arrived at through the process described above typically using the three 'common approaches to value' . [Back]

Q: What is the difference between an Appraisal and a Comparative Market Analysis (CMA)?
A: Simply put, the difference is night and day. The CMA relies on market trends. The appraisal relies on specific, verifiable comparable sales. In addition, the appraisal looks at other factors like condition, location and construction costs. A CMA delivers a ''ball park figure.'' An appraisal delivers a defensible and carefully documented opinion of value.

But the biggest difference is the person creating the report. An appraisal is created by a licensed, certified professional who has made a career of valuing properties. Further, the appraiser is an independent voice, with no vested interest in the value of a home, unlike the real estate agent, whose income may be tied to the value of the home. [Back]

Q: What does the appraisal report contain?
A: Each report must reflect a credible estimate of value and must 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. [Back]

Q: After completing the report, what assurance is there that the value indicated is valid?
A: In communicating an appraisal report, each appraiser must ensure the following:

• Information analysis utilized in the appraisal was appropriate.
• Significant errors of omission or commission were not committed individually or collectively.
• Appraisal services were not rendered in a careless or negligent manner.
• A credible, supported appraisal report was communicated.

Most states require that real estate appraisers are state licensed or certified. The state licensed or certified appraiser is trained to render an unbiased opinion based upon rigorous educational and experiential requirements. In addition, appraisers must abide by a strict industry code of ethics and comply with national standards of practice for real estate appraisal. These rules for developing an appraisal and reporting its results are the Uniform Standards of Professional Appraisal Practice (USPAP). [Back]

Q: How are appraisers certified?
A: Regulations regarding licensing and certification of Real Estate Appraisers vary from state to state. However, licensing and certification in Texas is associated with requirements of many hours of coursework, tests and practical experience. Once an appraiser is licensed, he or she is required to take continuing education courses in order to maintain their license. To see the specific requirements for Texas, go to: http://www.talcb.state.tx.us/AgencyInfo/default.asp

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Q: Whom do appraisers work for?
A: Typically, appraisers are employed by lenders to estimate the value of real estate involved in a loan transaction. Appraisers also provide opinions in legal disputes, tax matters and any real estate valuation decisions. [Back]

Q: Where does an appraiser get the information used to estimate value?
A: Gathering data is one of the primary roles of an appraiser. Data can be divided into categories of Specific and General . Specific data is gathered from the home itself. The appraiser gathers information of location, condition, amenities, size, quality of construction and other specific data during the on-site visit to the subject property. [Back]

General data is gathered from a number of sources. Local Multiple Listing Services (MLS) provide data on recently sold homes that may be used as comparable sales. Tax records and other public documents may assist in verifying other applicable information pertaining to the market. Flood zone data is gathered from FEMA data sources. Most importantly, the appraiser gathers general data from his or her past experience in creating appraisals for other properties in the same and/or similar markets. [Back]

Q: Why do I need a professional appraisal?
A: Anytime the value of real property is being used to make significant financial decisions, an appraisal may help qualify and/or quantify these decisions. If one is buying or selling a home, an appraisal may help establish the most appropriate value. If you are engaged in an estate settlement or divorce, an appraisal may help to ensure the real property is divided fairly. A home is often the single, largest financial asset most people own and understanding its market value may help one make the right financial decisions. [Back]

Q: What PMI and how can I get rid of it?
A: PMI stands for Private Mortgage Insurance. It insures a lender against loss on homes purchased with a down payment of less than 20%. Once equity in the home reaches 20%, it is usually possible to eliminate the PMI. Ask your lender if you are paying PMI and, if so, how you may be able to remove it. [Back]

Q: How do I get ready for the appraiser?
A: The first step in most appraisals is the home visit. During this process, the appraiser will photograph & measure your home, determine the quality of construction, layout of the rooms and confirm the home's general condition for inclusion in the report. The best thing you can do to help is make sure the appraiser has full & complete access to the interior and exterior of the house.

The following Items, if available, may help your appraiser to provide an 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 or statement.
• A list of personal property to be sold with the house (if applicable).
• A copy of the original plans. [Back]

Q: What is ''Market Value?''
A: Market value or fair market value is the most probable price a property should sell for in a competitive and open market under all conditions requisite to a fair sale with the buyer and seller acting prudently, knowledgeably and assuming the price is not affected by undue stimulus or pressure. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are typically motivated; (2) both parties are well informed and/or well advised; (3) a reasonable time is allowed for exposure to the open market; (4) payment is made in terms of cash in U.S. dollars or financial arrangements comparable thereto; and (5) the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. [Back]

Q: Who Actually Owns the Appraisal Report?
A: in most real estate transactions, the lender orders the appraisal. While the homebuyer pays for the report as part of the upfront or 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 - which is often included with 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, estate planning or tax challenges, for example. If not stipulated otherwise, the homeowner can use the appraisal for any purpose. [Back]

Q: Which home renovations add the most value to the price?
A: The answer to this is different depending upon the location of the home. Different markets value amenities differently. Adding a central air conditioner in Houston, Texas may add significant value, while putting one in a home located in Buffalo, New York might not have much impact.

As a rule, the most value returned from renovating a home usually is in the kitchen. Kitchen remodels may return as much as 88% of the remodel investment while bathrooms are probably second, returning approximately 85% of the investment. [Back]