Ryan Farmer Appraisal Co., Inc. has answers to "Frequently Asked Questions"
What is an appraisal?
What is an appraisal?(Back to top) The appraisal process is an evaluation that produces an opinion of value. There are three "common approaches to value" which assists the real estate appraiser arrive at this opinion or estimate. The Cost Approach is one of the processes that real estate appraisers use to find the value of a home; it involves discerning what the improvements would cost less physical depreciation, plus the land value. Another of the methods is the Sales Comparison Approach - which involves discovering a comparable analysis to other similar nearby properties which have recently sold. The Sales Comparison Approach is normally the most definitive and best indicator of value for a residential property. The Income Approach is mainly used for figuring out the market value of income-producing properties based on what an investor would pay based on the amount of capital a property produce.
Describe what an appraiser does(Back to top) An appraiser provides a fair and credible assessment of market value, to be used in making real estate transactions. Appraisers summarize their expert conclusions in appraisal reports.
Why would a person require a real estate appraisal?(Back to top) There are a lot of reasons to purchase an appraisal with the most common reason being real estate and mortgage transactions. Other reasons for purchasing an appraisal report include:
How is an appraiser different than a home inspector? (Back to top)The appraiser is not a home inspector nor does he/she do a full home inspection. An inspection is a third-party investigation of the accessible structure and electrical and mechanical systems of a property, from the top to the bottom. The usual home inspector's report will include an evaluation of the condition of the house's heating system, central air conditioning system (temperature permitting), interior plumbing and electrical systems, the roof, attic, and accessible insulation, walls, ceilings, floors, windows and doors, the foundation, basement, and visible structure.
What is the difference between an appraisal and a comparative market analysis (CMA)?(Back to top) Frankly, it's like comparing sugar and saccharin. The CMA depends on indefinite trends in the market. The appraisal is reliant on specific valid comparable sales. The appraisal report will also contain area and building prices. All a CMA does is generate a "ball park figure." Being a documented and carefully investigated opinion of value, appraisals are defensible and stand up in legal situations.
Who's creating the report is actually the biggest difference between a CMA and an appraisal. Real estate agents produce CMA's, and they don't always know the whole market or have specific competence when it comes to home valuation. The appraisal is produce by a licensed, certified professional who makes a living out of valuing properties. Likewise, the agent has something at stake since they get a commission based on the property's selling price - their commission - whereas the appraiser is bound by a code of ethics to collect only a previously agreed upon fee for assignments, regardless of their outcome.
What are the contents of an appraisal report? (Back to top)The main objective of an appraisal document is to let the reader know the value of the real estate in question, and depending on the scope of the report, one will customarily see the following:
After completing the appraisal, what guarantee is there that the value indicated is accurate?(Back to top) In communicating an appraisal report, each appraiser must ensure the following:
Who hires Ryan Farmer Appraisal Co., Inc.(Back to top) Typically, appraisers are employed by mortgage lenders to estimate the value of a home involved in a loan transaction. Attorneys and CPAs also hire appraisers for asset division and estate settlements.
Where does Ryan Farmer Appraisal Co., Inc. get the data used to estimate values in Vanderburgh County or other areas?(Back to top) One of the most important tasks an appraiser must accomplish is to gather property data. Data can be described as either Specific or General. Specific data is gathered from the home itself; Location, condition, amenities, size and other specific data are documented by the appraiser while on site.
General data is received from a numerous sources. To find out about recent sales to be used as "comps", an appraiser will often use the local Multiple Listing Service. Tax records and other courthouse documents verify actual sales prices in a market. Appraisers routinely have to report when a property lies in a flood zone, so that information is retrieved from a FEMA data outlet such as a la mode's InterFlood service.
And last but not least, the appraiser gathers general data from his or her collective knowledge gained from creating appraisals for other properties in the same market.
Why do I need a professional appraisal?(Back to top) Any time the value of your home or other real property is being used to make a significant financial decision, an appraisal helps. For those selling a home, you'll want to figure out a price that gets you the most profit but doesn't leave your home on the market too long; an appraisal can help with that. If you're buying, it makes sure you don't overpay. For parties settling an estate or divorce, an appraisal from Ryan Farmer Appraisal Co., Inc. is the best documentation to ensure assets are split up fairly. A home is often the single, largest financial asset anybody owns. Knowing its true value is essential to making smart financial decisions.
My mortgage statement has an item on it for PMI? Can I get rid of that?(Back to top) PMI stands for Private Mortgage Insurance. This additional plan takes care of the lender in the event a borrower defaults on the loan and the value of the home is less than the balance of the loan. Once you reach the point where your home's equity plus the amount you've paid is at least 20% of your loan balance, you can have your PMI dropped.
Does the appraiser need anything from me in advance?(Back to top) We start with an inspection of the home. What this entails is the appraiser, after setting up an appointment, personally going through the home - recording the layout of the rooms, taking photos and documenting the general condition of its amenities. On the home's interior, pick up any clutter and make sure we can access things like furnaces and water heaters. In the yard, trim any bushes so we can be free to get an accurate measurement of outside walls.
To help speed things along as well as ensure a more accurate report, try if possible to have the following items:
What is "Market Value?"(Back to top) In real estate appraising, Market Value is commonly defined as:
Once complete, who actually owns the appraisal report?(Back to top) For mortgage transactions, the lender requests the appraisal, either directly or through a third party. Even though it's the buyer that eventually pays for the report, the lender is the intended user. The buyer is entitled to a copy of the appraisal - it's usually bundled with all the other closing documents - but is not allowed to use the report for any other purpose without permission from the lender.
This rule doesn't apply when a home owner hires an appraiser directly. In these situations, the appraiser may stipulate how the appraisal can be used; for PMI removal, or estate planning or tax challenges, for example. If not stated otherwise, the home owner can use the appraisal for any purpose.
How can I get the most ROI out of home improvements?(Back to top) The answer to this is different depending upon the location of the home. For example, if you live in a cold region, insulated windows can be a real plus. But they aren't as attractive in a warm-weather climate.
As a rule, the most value returned from renovating a home comes in the kitchen. One recent study revealed that putting $20,000 into a kitchen remodel would add about $17,500 to the value of the home - or about an 88% return on investment. Bathrooms are right up there with kitchens, returning 85%. Adding bedrooms and baths can also boost the value of your home (when done well) as long as your home doesn't then become overbuilt for your neighborhood in terms of size.