Appraisal Associates of Southern Indiana has answers to "Frequently Asked Questions"
What is an appraisal?
What is an appraisal?(See list of FAQ's) The procedure of writing an appraisal report consists of an estimation which forms an opinion of value. The appraiser must use a few "approaches," typically three, to conclude the estimation of market value. One of the methods in use is the Cost Approach, which is what it would cost to restore the improvements to the house, minus depreciation and physical dilapidation, adding the land value. The Sales Comparison Approach deals with searching for similar houses in the vicinity and discovering the value based on comparing those houses to the house in question. Being the most common approach, the Sales Comparison Approach tends to be the most accurate and best indicator of market value for a residence. One of the least common approaches in appraising homes is the Income Approach, which is generally used to figure the value of a property based on what an investor would pay based on the income produced by the property.
What does an appraiser do?(See list of FAQ's) An appraiser generates a professional, unbiased determination of market value, to be used in making real estate transactions. Appraisers reveal the details of their expert findings in appraisal reports.
What would cause me to request services from Appraisal Associates of Southern Indiana?(See list of FAQ's) There are a lot of reasons to purchase an appraisal with the most common reason being real estate and mortgage transactions. A few other reasons for purchasing an appraisal report include:
How is an appraiser different than a home inspector? (See list of FAQ's)Home inspectors do not come to an opinion of value and do not do appraisal reports. A third-party home inspector will judge the structure of the home, from the roof to the bottom. Commonly, a home inspection report will evaluate the amenities and the necessities of the home: air conditioning (weather permitting), electrical functions, the condition of the heating system, the plumbing; then the structural integrity of the home such as the attic, visible insulation, walls, floors, ceilings, windows, then the foundation, basement and visible structures.
Is an appraisal the same as a comparative market analysis(CMA)?(See list of FAQ's) Simply, they have nothing in common. The CMA relies on indefinite market trends. An appraisal is based on comparable sales that can be verified by records. The appraisal report will also contain location and construction prices. A CMA delivers a "ball park figure." Delivering a defensible and careful analysis, an appraisal will give a clear opinion of value.
But the largest differentiator is who's doing the report. 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 has made a career out of valuing properties. Likewise, the agent has something at stake since they get a commission based on the property's selling price whereas the appraiser is bound by a code of ethics to accept a flat fee for assignments, regardless of their value conclusion.
What's in an appraisal report? (See list of FAQ's)Every report should demonstrate a credible value opinion and should document the following:
After completing the report, how can I have a guarantee that the value conclusion is veritable?(See list of FAQ's) In the documentation of an appraisal, each appraiser must ensure the following:
Who hires Appraisal Associates of Southern Indiana(See list of FAQ's) Most of the time, appraisers are called upon by mortgage lenders to render a value opinion on a home involved in a loan transaction. Attorneys and CPAs also hire appraisers for asset division and estate settlements.
Where does Appraisal Associates of Southern Indiana get the data used to estimate values in Vanderburgh County or other areas?(See list of FAQ's) One of the primary tasks an appraiser engages in is to collect data. Data can be split into Specific or General. Specific data is collected from the property itself; Location, condition, amenities, size and other specifics are noted by the appraiser while on site.
General data is collected from a number of sources. Local Multiple Listing Services (MLS) have information on recently sold homes that could be used as comparables. 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, and that information is retrieved from a FEMA data outlet such as a la mode's InterFlood product.
And most importantly, the appraiser assimilates general data from his or her collective knowledge gained from creating appraisals for other houses in the same market.
Why should I hire a licensed appraiser?(See list of FAQ's) If you're involved in any kind of financial decision and the value of your home is relevant, you'll want to hire a licensed appraiser. When selling your home, an appraisal helps you set a price that maximizes profit and reduces time on the market. If you're buying, it makes sure you don't overpay. If you're engaged in an estate settlement or divorce, it ensures that property is divided fairly. Simply put, a house is often the single, largest financial asset anybody owns. Don't make decisions in the dark with a professional appraisal.
My mortgage statement has an item on it for PMI? Can I get rid of that?(See list of FAQ's) PMI is the common abbreviation for for Private Mortgage Insurance. This additional policy covers the lender in the event a borrower defaults on the loan and the market price of the house is less than the balance of the loan. Once you can prove the amount you owe on your home is less than 80% of the home's market value, you can make a case to your lender to drop the PMI.
How do I get ready for the appraiser?(See list of FAQ's) We start with an inspection of the property. 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 features. On the home's interior, pick up any clutter and make sure we can get to things like furnaces and water heaters. In the yard, trim any bushes so we can be free to get an accurate measurement of exterior walls.
You can make the inspection go faster and improve the accuracy of the appraisal report by having the following things on hand:
What is "Market Value?"(See list of FAQ's) In real estate appraising, Market Value (as opposed to Fair Market Value) is commonly defined as:
Does the appraisal belong to the bank or the consumer?(See list of FAQ's) For mortgage transactions, the lender requests the appraisal, either directly or through a third party. While the buyer pays for the report as part of the closing costs, the lender retains the right to use the report or any information contained within. The buyer is certainly entitled to a copy of the appraisal - it's usually bundled with all the other closing documents - but is not entitled to use the report for any other purpose without permission from the lender.
It's different when it's the homeowner hiring the appraiser for things outside securing a mortgage. In these cases, the appraiser may stipulate how the appraisal can be used; for PMI removal, or estate planning or tax challenges, for example. If not stipulated otherwise, the home owner can do whatever they want with the appraisal.
I want to get more for my house. Where should I spend money renovating?(See list of FAQ's) 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 best ROI from renovating a home comes in the kitchen. According to one national survey, kitchen remodels returned an average of 88% of the investment. In other words, a $10,000 kitchen remodeling project would add approximately $8,800 to the value of the home. Bathrooms weren't far behind, returning 85%. Adding bedrooms and baths can also increase the value of your home as long as your home doesn't then become an oddball for your neighborhood in terms of size.