Are real estate appraisals really necessary?
What services do appraisers provide?
Can I get a copy of an appraisal a lender ordered on my home?
Is there anything I can do to speed up the process?
What constitutes a typical appraisal?
What is a comparable sale?
What is market value?
What is the cost approach?
What is the income approach?
What does highest & best use mean?

Are real estate appraisals really necessary?

Yes. Because much private, corporate and public wealth lies in real estate, the determination of its value is essential to the economic well-being of society. Professional appraisers are trained to determine these values by gathering, analyzing and applying information about a property. The professional opinion of the appraiser influences the decisions of people who own, manage, sell, purchase, invest in and lend money on the security of real estate. As an impartial third party in the lending process, the appraiser serves as a vital "check in the system," protecting buyers from overpaying for property as well as lenders from over lending to buyers.

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What services do appraisers provide?

Depending upon an appraiser's designation and qualifications, he or she can provide some or all of these services:

Residential or Commercial Appraisals | Counseling and Consulting
Evaluations | Expert Witness Testimony | Litigation Preparation
Feasibility Studies | Market Analyses | Market Rent & Trend Studies
Tax Assessment Review | Advice on Zoning Testimony

 

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Can I get a copy of an appraisal a lender ordered on my home?

Yes. Under the Equal Credit Opportunity Act, your lender must, upon your written request, provide you with a copy of the appraisal report. If you are dissatisfied with any information contained in your appraisal report, you should contact your lender immediately.

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Is there anything I can do to speed up the process?

The following items, if available, will help your appraiser to provide a more accurate appraisal in a shorter period of time.

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What constitutes a typical appraisal?

The appraisal process involves data collection and reconciliation of three approaches to value (market, cost, and income approaches). In most appraisals of single or two family dwellings, the market approach best reflects the actions of buyers and sellers. The market or direct sales comparison approach to an estimate of value is a process of comparing market data: prices paid for similar properties, prices asked by owners and offers made by prospective purchasers or tenants willing to buy or lease.

The appraiser attempts to both gauge and reflect the anticipated reaction by a typical purchaser to the subject property. Adjustments are made for major differences between the comparable and the subject property for: location, gross living or buildable area, lot size, condition/effective age, market conditions, degree of remodeling, construction quality and significant amenities (fireplace, jacuzzi, in ground pool, garage, deck, patio, porch, central air conditioning, etc.).

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What is a comparable sale?

A comparable sale is a property similar to the subject property in most respects, is located in a similar (nearby) location and has sold recently at arms length (both seller and purchaser act independently of each other and have no connection or relationship to each other). In most residential appraisals, the selection of comparable sales is the single most important determining factor in establishing value. It is the appraiser's responsibility to adequately research the local real estate market and determine which comparable sales best represent the value characteristics of the subject property.

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What is market value?

Market value or fair market value is the most probable price that a property will sell for in a competitive and open market, assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specific date and the passing of title from seller to buyer under conditions whereby:

• :: Buyer and seller are typically motivated
  :: Both parties are well informed or well advised
  :: There is adequate time for exposure to the open market
  :: Payment is made in U.S. dollars
  :: Special financing or sales concessions do not affect price.

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What is the cost approach?

The cost approach combines an estimate of land value with an estimate of depreciated reproduction or replacement cost of the improvements. The principle of substitution is the basis of the cost approach, in that no rational person will pay more for a property than the amount for which he can obtain, by purchase of a site and construction of a building, without undue delay, a property of equal desirablity and utility.

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What is the income approach?

The income approach is based on an estimate of net income from the operation of an income producing property and the selection of the property capitalization rate from market indications of similar properties. The principle of anticipation is the basis of the income approach and affirms that value is created by the expectation of benefits to be derived from possession, operation and/or capital gain at resale.

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What does highest & best use mean?

Typically, highest & best use means the use or utilization that provides the most profitable return on investment. It is that use, selected from reasonably probable and legal alternative uses, which is found to be physically possible, appropriately supportable, financially feasible, and will result in the highest possible land value.