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What is a professional Appraisal?
A professional appraisal is an unbiased opinion of value that is the most probable price a buyer would expect to pay or a seller recieve for the transfer of a parcel of real estate, where both the buyer and seller are informed parties. To become an informed party, many people, as well as, professional firms engage a licensed, certified, professional real estate appraiser to analyze and report an opinion of value that is reached through thorough and methodical application of the valuation techniques available to the profession of residential real estate valuation.
The purchase process for home ownership is complex and represents one of the largest single investments most people will make in their lives. Several real estate related professionals are usually involved in these real estate transactions to ensure that this special moment for the buyer and seller is not spoiled by the many potential problems that may arise during the process. Whether the purchase is for a primary residence or an investment or vacation home, it is in the best interest of the transaction to utilize the various real estate and real estate related professionals to make informed decisions at each step in the process.
A Realtor is the most familiar intermediary involved in real estate transactions and provides both the buyer and seller with the means for communicating towards an agreed transaction price. Realtors perform a basic anaysis of the subject property that is being marketed or listed and often perform a comparative market analysis or CMA to assist the seller in determining an offering or listing price. The CMA should not to be mistaken with the appraisal to be performed by a licensed, certified, professional appraiser. The certified appraiser is bound by much more stringent rules and guidelines than what is required to perform a CMA and most importantly the certified appraiser has no monetary interest in the transaction or bias involved with his or her value determination. This does not minimize in any way the valuable services provided by a Realtor, but does validate the need for an unbiased professional appraisal to assist in such situations and transactions where actual market value is concerned.
Mortgage lenders provide the financial capital and expertise regarding the different loan products and options available to the borrower. Lenders understand the vast complexity of the real estate market and more often than not, require a qualified appraisal report be performed prior to deciding whether to lend or not. Then, the title company has the duty of ensuring that the transaction is completed in a professional manner and that a clear title passes from the seller to the buyer and to also provide title insurance for the property.
So it is clear to see that many people are exposed to the risk involved in large capital transactions, such as real estate investments. This is where the appraisal process comes in to ensure the properties value is commensurate with the amount being paid for it. The first part of the appraisal process is the identification and inspection of the subject property to be appraised.
Appraisal Inspection
A professional appraisal inspection is performed to ascertain the true status of the property. The appraiser must note the various features associated with the property such as, number of bedrooms, bathrooms, the contruction design and layout, the quality of construction, and so on to verify that their present state is in the condition a reaonable buyer would expect them to be in and if not report the findings on the appropriate forms. A building sketch is often included to ensure that the square footage is correct and conveying the floorplan layout of the property. The appraiser's main duty during an inspection is to observe for any obvious features or defects that can positively or negatively impact the subject's market value. Below are some good tips regarding the appraisal inspection:
Preparing for the Appraiser's Arrival & Inspection
1. This is an appraisal of real estate, not of housekeeping! Unless it is a matter of personal concern, it is not necessary to perform an extraordinary amount of cleaning, etc.
2. Please provide the following, if available: • House location survey/plat • Copy of deed(s) • Copy of tax bill(s) or assessments notice(s) • Any HOA information • Restrictions and/or convenants
3. Tell us about any recent major improvements or property defects, if any.
4. Most appraisers set up a time range for appointments; please be patient. A prior appointment may have required additional time due to unforeseen circumstances.
5. Know ahead of time whether the appraiser is to be paid at time of inspection or by some other arrangement.
6. If you have pets, please be prepared to control them.
7. Please clear any moveable obstacles from the perimeter of the dwelling or detached structures to allow for the appraiser to access these areas to measure them.
After the Appraiser Completes the Inspection
Location, location, location is the basic ingredient to property value, and verify, verify, verify is the basic premise of appraising. Good work does take time! Your appraiser should know prior to accepting the assignment what the deadlines are and to whom he/she should report the value. Typically, this is the lender. The Uniform Standards of Professional Appraisal Practice (USPAP) prohibits disclosure of any appraisal report content to anyone other than the client. The client is the person or firm ordering the appraisal and not necessarily the one who pays for it. A lender, at your request, is required under Florida law to provide you a copy of the report provided you have paid for the appraisal service.
Valuation Techniques
The professional appraiser has three distinct approaches to determine the subject's market value. These are: the cost approach, the sales comparison approach and in the case of rental or investment property an income approach.
The Cost Approach
The most straightforward of the three approaches is the cost approach, which utilizes local current cost data, labor rates and other factors to determine how much it would cost to construct a similar improvement to the one being appraised. The cost approach is considered to be the upper threshhold value of what a property would sell for as it would not make sense to pay more for an existing property if it will cost less to construct it new. With the implementation of the updated 1004 URAR form, the site value must be appraised increasing the accuracy or inaccuracy of this method based on the appraisers knowledge and methodical approach. The cost approach also becomes less accurate as the age of the property being appraised increases. Overall the cost approach gives the appraiser an invaluable tool to determine the value of the subject property.
The Sales Comparison Approach
Due to the limitations that can emerge using the Cost Approach in arriving at a final opinion of value, alternatively appraisers rely on the sales comparison approach to assist in determining the final value for these types of properties. It is the duty of the appraiser to know and understand the neighborhoods and communities in which they pratice. It is through this understanding that an appraiser is able to narrow the pool of information to down the most comparable sales to utilize within their reports. Through research of recent sales in close proximty to the subject the appraiser finds properties which are comparable to the property being appraised. It is a logical and thorough method of the value opinion determination and provides a market driven method to calculate their opinion. There is no better indicator of a properties value than the very similar property which sold last week on the same street in the same neighborhood. Adjustments are made to the comparable sales to more accurately reflect the subject property. These adjustments are market driven and better known as a paired-sales or paired-data analysis, which identifies individual items in the market, such as fireplaces, garages, porches, pools, patios and the value attributed to items such as these for adjustment purposes. Hence, the Sales Comparison Approach has been embraced by most knowledgeable real estate professionals and has provided the appraiser with another invaluable tool to determine the market value of the subject property.
The Income Approach
This method utilizes current or expected income streams generated by an income producing property. This method also utilizes market rental data to determine rent pheasability and expectations for the subject property. This method also incorporates the Operating Income Statement to analyze common costs of maintaining rental or investment properties. This approach is utilized mostly for income producing properties to arrive at the current value of those revenues over the projected lease term.
The Final Opinion of Value or Reconciliation Process
After methodical preparation of the approaches to value outlined above, the appraiser is then prepared to provide and opinion of maket value for the subject property.
Alachua Appraisal LLC
28602 NW CR 241
Alachua, FL 32615
Phone: 352-258-8712
Fax: 386-462-2771
Direct email address - alachuaappraisal@windstream.net
