- What is an appraisal?
As defined by the Uniform Standards of Professional Appraisal Practice 2003, an appraisal is: (noun) the act or process of developing an opinion of value; an opinion of value. To learn more about how the appraiser determines the estimate of value please see the Appraisal Process article in the Educational Materials section.
- What is the appraisal process?
The appraiser uses a well-defined series of steps to reach the final estimate of value for your property.
The process begins with the Inspection. The appraiser goes out to the property to do a physical inspection of the site, gathering measurements, making a sketch, assessing any amenities & condition of the property. The surrounding neighborhood is examined as well.
The next, and most time consuming step is the application of the three approaches to value. These are the Cost Approach, Sales Approach, and Income Approach.
The Cost Approach to value assumes that no one would pay more for a property than it would cost to buy the land and construct the building. The appraiser uses local building costs, labor rates and other factors to determine how much it would cost to build a property like the one being appraised. Depreciation is then estimated for a final estimate of value by the Cost Approach. The Cost Approach to value is most applicable to new construction and unique properties.
The Sales Comparison approach to value uses market data to determine the estimate of value. It compares prices paid for similar properties in a similar geographic location. Usually a comparison grid is used to show the differences between the subject and each comparable sale property. Adjustments are made to reflect such items as gross living, or building area, location, condition, lot size, traffic volume, flow, and special financing concessions.
The Income Approach to value is used for income producing properties. It bases the estimate of value on the expectation of benefits to be derived from possession, operation and/or capital gain at resale of the property. The income approach includes the net income from the operation of the property less expenses to arrive at a final value after utilization of a capitalization rate.
The final step to the appraisal process is the Reconciliation. The appraiser examines all applicable approaches to value and determines the final estimate of value, based on the most applicable approach.
- What is market value?
As defined by the Uniform Standards of Professional Appraisal Practice 2003, market value is: The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. 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:
- buyer and seller are typically motivated;
- both parties are well informed or well advised, and acting in what they consider their own best interests;
- a reasonable time is allowed for exposure in the open market;
- payment is made in terms of cash in United States dollars or in terms of financial arrangements comparable thereto; and
- 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.
- Why do I need an appraisal?
An appraisal gives an accurate representation of the property, and provides an estimate of value. If you want to buy, sell, or refinance your property your lender will probably require an appraisal. This ensures that they have an unbiased estimate of value. An appraisal may also be needed for PMI removal, property tax appeals, estate planning, and equitable distribution settlements
- Who does the appraiser represent?
The appraiser is an advocate of the property, and not an advocate of the parties involved in the transaction.
- Who is the appraiser’s client?
The appraiser’s client, as defined by the Uniform Standards of Professional Appraisal Practice 2003 is:
The party, or parties who engage an appraiser (by employment or contract) in a specific assignment. Comment: The client identified by the appraiser in an appraisal, appraisal review, or appraisal consulting assignment (or in the assignment workfile) is the party or parties with whom the appraiser has an appraiser-client relationship in the related assignment, and may be an individual, group, or entity.
If a lender orders the appraisal they are the appraiser’s client. This is true even if the appraisal is paid for by another party. The appraisal can only be discussed with or distributed to the client, unless permission to do otherwise is given, in writing, by the client.
- How can I get a copy of the appraisal if I am not the client?
If you paid for an appraisal completed in connection with an application for lending purposes then you are entitled to a copy of the report. This report must be supplied by the lender. The following section of the Equal Credit Opportunity Act clearly defines the details:
U.S. Department of Justice Civil Rights Division Housing and Civil Enforcement Section
The Equal Credit Opportunity Act
CODE OF FEDERAL REGULATIONS
TITLE 12--BANKS AND BANKING
CHAPTER II--FEDERAL RESERVE SYSTEM
SUBCHAPTER A--BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
PART 202--EQUAL CREDIT OPPORTUNITY (REGULATION B)
REGULATION B (EQUAL CREDIT OPPORTUNITY)
Current through October 1, 1999; 64 FR 53565
§ 202.5a Rules on providing appraisal reports.
a. Providing appraisals. A creditor shall provide a copy of the appraisal report used in connection with an application for credit that is to be secured by a lien on a dwelling. A creditor shall comply with either paragraph (a)(1) or (a)(2) of this section.
i. Notice. A creditor that provides appraisal reports only upon request shall notify an applicant in writing of the right to receive a copy of an appraisal report. The notice may be given at any time during the application process but no later than when the creditor provides notice of action taken under § 202.9 of this part. The notice shall specify that the applicant's request must be in writing, give the creditor's mailing address, and state the time for making the request as provided in paragraph (a)(2)(ii) of this section.
- Routine delivery. A creditor may routinely provide a copy of the appraisal report to an applicant (whether credit is granted or denied or the application is withdrawn).
- Upon request. A creditor that does not routinely provide appraisal reports shall provide a copy upon an applicant's written request.
ii. Delivery. A creditor shall mail or deliver a copy of the appraisal report promptly (generally within 30 days) after the creditor receives an applicant's request, receives the report, or receives reimbursement from the applicant for the report, whichever is last to occur. A creditor need not provide a copy when the applicant's request is received more than 90 days after the creditor has provided notice of action taken on the application under § 202.9 of this part or 90 days after the application is withdrawn.
b. Credit unions. A creditor that is subject to the regulations of the National Credit Union Administration on making copies of appraisals available is not subject to this section.
c. Definitions. For purposes of paragraph (a) of this section, the term dwelling means a residential structure that contains one to four units whether or not that structure is attached to real property. The term includes, but is not limited to, an individual condominium or cooperative unit, and a mobile or other manufactured home. The term appraisal report means the document(s) relied upon by a creditor in evaluating the value of the dwelling.
[58 FR 65661, Dec. 16, 1993]
- Why does the appraiser need to come inside my house?
The appraiser needs to give an accurate description of the property. An interior inspection will allow the appraiser to gather information for that description. Some of this data includes the room count, floor plan, amenities, and condition of the property. The appraiser will also measure and sketch the property.
- How long will the appraiser be at the property?
The average total interior and exterior inspection time varies from 30 minutes to an hour, depending on the size of the property and difficulty of the assignment.
- What information do I need to give to the appraiser?
If you have a residential property it is helpful to have a deed, or survey, and a copy of recent tax receipts. The cost of recent updates or improvements may be helpful, and will also reflected in the inspection of the home. If you are purchasing the property a copy of the sales contract will be needed, as well as the plans & specs if the property is a new construction.
If you have a commercial/industrial property we request that copies of the following documents be provided before the inspection of the property:
If you are purchasing the property a copy of the sales contract will be needed, as well as the plans & specs if the property is a new construction or renovation.
- Survey or Plot Plan
- 3 Year Income & Expense Statement
- Current rent roll
- Recent tax receipts
- What is PMI removal?
Private Mortgage Insurance or PMI is the supplemental insurance that lenders require buyers to purchase when the amount being loaned is more than 80% of the value of the home. Usually the additional payment is added into the monthly mortgage payment. PMI becomes unnecessary when the remaining balance of the loan drops below this 80% level. Lenders may require an appraisal to determine that the remaining balance of the loan has dropped below 80%.
West Penn Appraisers is dedicated to providing all facets of Real Estate Appraising in an efficient, professional and timely manner, at the same time remaining focused on customer satisfaction through outstanding customer service.