Michael Smith Appraisals, Inc has answers to "Frequently Asked Questions"
What is an appraisal?
What is an appraisal?(Back to top) An appraisal is an estimation that concludes with an opinion of value. This opinion or estimate is found using a formal method that usually uses three "common approaches to value". One of the processes in use is the Cost Approach, which finds what it would cost to replace the improvements to the house, less the age and physical deterioration, adding the land value. Another of the approaches is the Sales Comparison Approach - which concerns making a comparable analysis to other similar properties within a close proximity which have recently sold. Being the most common approach, the Sales Comparison Approach is considered the most accurate and best indicator of market value for a property. One of the least common approaches in appraising residential properties is the Income Approach, which is mainly used to determine the value of a property based on what an investor would pay based on the capital produced by the property.
Describe what an appraiser does(Back to top) An appraiser generates an impartial and well substantiated determination of market value, in the support of real estate transactions. Appraisers summarize their professional findings in appraisal reports.
Why would someone request services from Michael Smith Appraisals, Inc?(Back to top) There are a lot of reasons to get an appraisal with the usual reason being real estate and mortgage transactions. A few other reasons for purchasing an report include:
How is an appraiser different than a home inspector? (Back to top)Home inspectors do not generate an opinion of value and do not use the same forms as appraisers. An inspection is a third-party evaluation of the livable structure and mechanical systems of a home, from the top to the foundation. The general home inspector's report will include an evaluation of the condition of the property'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.
Is an appraisal the same as a comparative market analysis(CMA)?(Back to top) To be blunt, it's like comparing sugar and saccharin. What the CMA relies upon are vague trends. The appraisal is based on specific proven comparable sales. Location and building prices are also a priority in an appraisal. A CMA delivers a "ball park figure." An appraisal delivers a defensible and carefully documented opinion of value.
Who's creating the report is actually the most significant difference between a CMA and an appraisal. Real estate agents, who may not have a true grasp of valuation methods or the entire market, write CMA's. The appraisal is created 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 sum for assignments, regardless of their value conclusion.
What does the appraisal report contain? (Back to top)Every report should indicate a believable estimate of value and should identify the following:
Once the appraisal has been completed, what assurance is there that the value indicated is valid?(Back to top) In communicating an appraisal report, each appraiser must make sure of the following:
Who employs appraisers?(Back to top) Commonly, appraisers are hired by mortgage lenders to estimate the value of a home involved in a loan transaction. Appraisers also provide opinions for legal settlements, tax matters and investment decisions.
Where does Michael Smith Appraisals, Inc get the information used to estimate values in Floyd County or other areas?(Back to top) One of the main things an appraiser does is to collect property data. Data can be categorized as either Specific or General. Specific data is collected from the home itself; Location, condition, amenities, size and other specific data are documented by the appraiser while on site.
General data is gathered from a number of places. To research recently sold homes to be used as "comps", we typically go to the local Multiple Listing Service. To verify actual sales prices, we research items in the assessor's office and other public documents that are usually online nowadays. Flood zone data is available from FEMA data outlets, such as a la mode's InterFlood system.
And most importantly, the appraiser gathers 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?(Back to top) An appraisal is a valuable tool whenever your home's value is relevant to some financial decision. 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. When buying, you can avoid overpaying by getting an independent appraisal. For parties settling an estate or divorce, an appraisal from Michael Smith Appraisals, Inc is the best documentation to ensure assets are split up fairly. A home is often the single, largest financial asset anybody owns. Without knowing its real value, wise financial decisions are impossible.
My mortgage statement has an item on it for PMI? Can I get rid of that?(Back to top) PMI is the common abbreviation for for Private Mortgage Insurance. PMI guards the lender in case a borrower defaults on the loan and the market price of the home is less than what is owed on 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?(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 status of its amenities. The best thing you can do to help is make sure we have easy access to the exterior of the house . Trim any shrubs and move any items that would get in our way while we measure the structure. Indoors, make sure the appraiser can get to items like furnaces and water heaters.
You can make the inspection go faster and improve the accuracy of the appraisal report by having the following things on hand:
How does an appraiser define "Market Value"?(Back to top) In real estate appraising, Market Value (as opposed to Fair Market Value) is commonly defined as:
Who has rights to the appraisal report?(Back to top) For mortgage transactions, the lender orders 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 entitled to use the report for any other purpose without permission from the lender.
The exception to this rule is when a home owner engages 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.
Are some home improvements more worthwhile than others?(Back to top) The answer to this is different depending upon the location of the home. For example, putting in an inline humidifier could be nice in arid regions, but completely useless near the coast!
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%. On the contrary, an improvement that may not add value would be painting just for the sake of redecorating.