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What is an appraisal?

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A home purchase is the largest, single investment most people will ever make. Whether it's a primary residence, a second vacation home or an investment, the purchase of real property is a complex financial transaction.

Many professionals are involved in this transaction. The Realtor is the most common face of the transaction. The mortgage company or lender provides the financial capital necessary to fund the transaction. The title company ensures that all aspects of the transaction are completed and that a clear title passes from the seller to the buyer.

So who makes sure the value of the property is in line with the amount being paid? This is where the appraiser comes in. An appraisal is an unbiased estimate of the fair market value in today's market.

The Inspection
So what is the appraisal process? It starts with an inspection of the property. The appraiser will look at and document the features of the property and the site; such as the physical materials, features, construction quality and condition. The inspection often includes a sketch of the building, ensuring the proper square footage and conveying the layout of the rooms. Once the property has been inspected, an appraiser uses two or three approaches to determining the value of real property: the cost approach, the sales comparison and, in the case of a rental property, the income approach.

Cost Approach
The cost approach is the easiest to understand. The appraiser uses information on local building costs, labor rates and other factors to determine how much it would cost to construct a dwelling similar to the one being appraised. The value of the site is then added to this value. 

Sales Comparison
With this approach to value the appraiser researches recent sales in the vicinity and finds properties which are ''comparable'' to the subject being appraised. The sales prices of these properties are used as a basis to begin the sales comparison approach.

Using knowledge of the value of critical items such as square footage, bathroom and bedroom count, and other amenities, the appraiser adjusts the comparable properties to more accurately portray the subject property's value.

Income Approach                                                                                                  In the case of income producing properties - rental houses for example - the amount of income the property produces is used to arrive at the current value of those revenues over the foreseeable future.

Combining information from those approaches that are applicable to the subject property, the appraiser determines an estimated market value for the subject property.



PURCHASE OF A HOME An appraisal report performed by a qualified, state-licensed appraiser provides you with an objective, third party opinion of a property's current Market Value so that you can make an informed offer to purchase. And for the small price of this service, you can give yourself "peace of mind" prior to making an offer that you're offering a fair price for the property. If a home mortgage loan will be used for the purchase the lender may be legally required to have an appraisal.

REFINANCE OR GET A HOME EQUITY LOAN If you need to consolidate bills, have a college tuition to pay, or just want to tap into the equity of your home, you'll need a new loan, which oftentimes requires a new appraisal of the property.

PMI REMOVAL Private Mortgage Insurance or PMI is the supplemental insurance that many lenders ask home buyers to purchase when the amount being loaned is more than 80% of the value of the home. This additional payment is typically folded into the monthly mortgage payment and is quickly forgotten. When the remaining balance of the loan - whether through market appreciation or principal paydown - dips below this 80% level PMI can be removed. The United States Congress passed a law in 1998 (the Homeowners Protection Act of 1998) that requires lenders to remove the PMI payments when the loan-to-value ratio conditions have been met. A current appraisal of market value is typically required.

DIVORCE SETTLEMENT A divorce can be a particularly traumatic experience for both parties and is often further complicated by the difficult decision of "Who gets the house?". Regardless of how this situation is to be resolved, it's a good idea to order an appraisal so both parties are fully aware of what the true market value is.

ESTATE LIQUIDATION The loss of a loved one is a difficult time in life and settling an estate from a death, or probate, often requires an appraisal to establish Fair Market Value for the residential property involved. The ethics provision within the Uniform Standards of Professional Appraisal Practice (USPAP) binds us with confidentiality, ensuring the fullest degree of discretion.

RELOCATION We understand the stress involved with employee relocation. Thankfully, many employers offer programs to help their employees with this transition. An appraisal is invaluable in determining the current market value of the property.

SELLING A HOME Before you decide to sell your home, you need to determine what it should sell for. But, there may be other equally important questions to consider such as, "Should we paint the house before we sell it?", or, "Should I complete my kitchen remodel?" Many changes that we make to our houses have an effect on their value. Unfortunately, not all of them have an equal effect.

Whether you choose to sell your home on your own or use the assistance of a real estate agent, a professional appraisal will help you make a more educated decision on what repairs actually add dollar for dollar value and what a fair selling price would be. Unlike a real estate agent, an appraiser has no vested interest in what amount the house sells for as appraiser fees are not based on a percentage of the sales price as Realtors are.