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Frequently Asked Questions
Q: What is a Real Estate Appraisal?
A: A Real Estate Appraisal is a written or oral opinion of market value or other type of value, prepared by a licensed real estate appraiser as of a specific date known as the effective date. An appraisal is an independant and impartial analysis of all data relative to the property being appraised such as; comparables sales, leases, listings, and market activity in the immediate area. There are three approaches utilized by appraisers in developing an opinion of value. They are the sale comparison approach, cost approach, and income approach.
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Sales Comparison Approach-A set of procedures in which a value indication is derived by comparing the property being appraised to similar properties that have been sold recently, then applying appropriate units of comparison and making adjustments to the sale prices of comparables based on the elements of comparison.
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Cost Approach-The process of estimating the value of a property by adding the appraiser’s estimate of the reproduction or replacement cost of a property improvements, less depreciation to the estimated land value.
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Income Approach – the income approach is a process to estimate an income producing property by converting the anticipated cash flow and reversion into property value. This can be accomplished in two ways. One years income expectancy can be capitalized at a market derived capitalization rate or a capitalization rate that reflects a specific income pattern, return on investment, and change in the value of the investment. Alternatively, the annual cash flow for the holding period and the reversion can be discounted at a specified yield rate.
Q: Do I need a Real Estate Appraisal?
A: There are many reasons a person might need an appraisal weather it be for financial, legal, investment, or personal purposes. The most common reason for a real estate appraisal is for a mortgage transaction. However there are many other purposes as well, such as:
Q: How does an appraiser determine the market value of a property?
A: An appraiser determines the market value of a property by first performing a highest and best use analysis of the subject site, then developing the three common approaches utilizing data derived from the subject’s property market. The cost approach estimates the cost to replace or reproduce the improvements as of the effective date of the appraisal, subtracting for deterioration and obsolescence. The sales comparison approach compares the subject property to others of similar location, size, and quality that have recently sold. The income approach estimates an income producing property by converting the anticipated cash flow and reversion into property value. One years income expectancy can be capitalized at a market derived capitalization rate or a capitalization rate that reflects a specific income pattern, return on investment, and change in the value of the investment. Alternatively, the annual cash flow for the holding period and the reversion can be discounted at a specified yield rate.
Q: Where does an appraiser get the information used in the appraisal?
A: Gathering information is the most important aspect of the appraisal process. Specific information pertaining to the subject property such as location, size, condition, and amenities are gathered during a physical inspection of the property by the appraiser.
General data such as recent sales, listings, leases, and market activity are gathered from local multiple listings services (MLS). Tax records and other public record documentations such as tax maps and zonings maps are also utilized to verify sale prices, owners, lot sizes, and zoning classifications. FEMA data sources such as A la mode inter flood product. Last but not least the appraiser’s own experience in the market.
Q: What does an appraisal report contain?
A: Standard industry forms prepared by Freddie Mac and Fannie Mae are most commonly used for residential appraisals for mortgage financing purposes. Narrative appraisal reports are prepared for complex residential properties and most commercial properties. An appraisal report contains factual information and analysis of the subject property, its neighborhood, and market. Exhibits relaying the appraisers findings and opinions include a building sketch, photographs, location maps, and any other relative data or documentation pertaining to the subject property. All appraisal reports must include the following: Purpose of assignment, the type of value reported and a definition of the value reported, the effective date of the appraiser’s opinions and conclusions.
The scope of work used to complete the assignment
- Property characteristics including locations, legal attributes, economic attributes, and the real property interest valued.
Q: What qualifications are appraiser’s required to have?
A: Most states across the nation require appraisers to be state licensed and to have successfully completed education requirements based on what type of licensed is held. Appraiser’s are also required to adhere to industry standards and professional codes set forth by the Appraisal Foundation.
Q: How long does an appraisal take to complete?
A: Typical residential appraisals usually take anywhere from 24-72 hours after the inspection to complete. An appraisal of a commercial property generally takes longer due to the extent of research and report preparation required. Typical commercial appraisal reports could take anywhere from 1-2 weeks to complete depending on the complexity of the property and report requirements.
Q: How much does an appraisal cost?
A: For traditional residential products please see our fee schedule. For a quote for a commercial appraisal please call or submit the property information to receive a quote in less than one hour during business hours of Monday-Saturday 9am-6pm.
Q: What is USPAP? (link to popular uspap site)
A: USPAP stand for the Uniform Standards of Professional Appraisal Practice. USPAP is the code of ethics written by the Appraisal Foundation which congress appointed as the source of appraisal standards and appraiser qualifications. can be thought of as the quality control standards applicable for appraisal analysis and reports in the United States and its territories. USPAP, as its commonly known, was first developed in the 1980's by a joint committee representing the major U.S. and Canadian appraisal organizations. As a result of the Savings and Loan Crisis, the Appraisal Foundation (TAF) was formed by these same groups, along with support and input from major industry and educational groups, and TAF took over administration of USPAP.
Q: Who does an appraiser work for?
A: The appraiser completes an appraisal report for the party who ordered it. However no one is entitle to influence the results of the appraisal. Appraisers are bound by USPAP to perform all appraisals with an unbiased, independent and competent opinion of value regardless of who ordered it and for what purpose it was ordered for. If you are a homeowner who had an appraisal done on their house for mortgage financing then the appraisal belongs to the lending institution who ordered it, however you are entitled to a copy of the report under the equal credit opportunity act.
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