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Valley
Home Values
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US Dept of HUD
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 Should you have any
additional questions regarding the appraisal process, please feel free to
contact us via e-mail.
Appraisal
Report:
An appraisal report is a supported and defendable
estimate of market value as of a given date. This includes an inspection
of the subject property, all of the research, analysis, conclusions and
reconciliation of approaches to value necessary to form credible results to provide an opinion of value
for a real property or vacant land parcel.
The following describes the principles, practices and
procedures involved in the process of providing a finished appraisal report to
the lender or client;
- What is market value?
- Who is the appraisers client?
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Steps in providing the appraisal report?
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Is an appraisal similar to a Realtors CMA?
- What is PMI? How do I remove it?
- Is an
appraisal report a home inspection?
- How do I prepare for the appraisal inspection?
[The most probable
price that 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, knowledgeably and 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; (1) buyer and seller are typically motivated; (2) both parties are well
informed or well advised and each acting in what he or she considers his or her
own best interest; (3) a reasonable time is allowed for exposure in the open
market; (4) payment is made in terms of cash in U.S. dollars or in terms of
financial arrangements comparable thereto; and (5) 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.]
[The Uniform Standard of Professional Appraisal
Practice(USPAP) defines the client or intended user of an appraisal report as
the party or parties that ordered the report. This is most often the
lender, however could be a home owner, Realtor, buyer paying cash for a home,
attorney, court appointed or any number of other 3rd party users. The
appraiser must establish at the time of employment who the intended user of the
report is as this user is the only party the appraiser may discuss the details
and results of the assignment to. Further USPAP standards state that each
appraisal assignment is for the specific intended use as stipulated in the
employment agreement and is an "end use" product (one time use).
This means that a market value appraisal used for
determining a list price in preparation to sell a home could not be used later
for the new owners mortgage in that sale of that home. likewise, a
refinance appraisal report could not be used later to remove private mortgage
insurance(PMI) or to secure a line of credit or second loan on the home.
These instances would require establishing a new appraiser/client relationship,
a re-inspection of the property, new analysis including more recent sales if
available and the preparation of and delivery of a new report to the new
client(new order).]
[After determining the intended use and intended user of
the report, the next step is defining the property to be appraised(subject).
The county assessors office and county recorders office are consulted to locate
the current components, owner of record, tax and previous sales records are
reviewed as well as the subject parcel plat map, census tract information,
current flood hazard area determination, current zoning and any affidavits of
sale or recorded deeds to determine if all are in compliance. next, a
multiple listing service(MLS) property history search is conducted to determine
if there are any current listings or and prior listings within the past 36
months. All of this information is reported to the client within the
completed report.
The county tax records and MLS are searched within the
subject subdivision to determine any recent recorded sales, active listings or
pending sales to determine the pulse of the market within the subdivision.
This search is then expanded outward a radius of approximately 1 mile from the
subject property to locate similar recent property sales that most closely match
the subject in terms of age, size, lot size, quality of construction,
components, features, condition and upgrades.
During the property inspection, photos are taken of the
front & rear of the home, street scene and interior photos of the main living
areas, kitchen, bathrooms and any other areas containing significant value that
would be addressed within the report. The home is measured on the exterior
as close to the foundation as practical, taking out any non-livable areas to
determine the gross livable area of the property(under air). a sketch of
the home is created including a floor plan layout. all major components,
overall condition, features, upgrades, recent improvements, work-in-progress,
deferred maintenance or deterioration of materials are all noted.
The report is then compiled looking at all 3 approaches to
value and determining which of each is necessary within the report. These
are; (1) The cost approach which re-creates the home on paper. this
approach determines the value of the land as if vacant, plus the estimated
replacement cost today(new), plus added improvement costs(garage, patio's,
pools, landscape, etc.), minus depreciation due to age, over improvement, poor
floor plan, backing to a major thru-street, etc), plus other site
improvements(sidewalks, driveway, water & sewer lines, cable, gas, etc) all
added together to produce an estimated value based on the cost approach; (2) The
income approach which determines a relationship between recent sales prices and
current market rents(gross rent multiplier). This approach is valid when a
property is being used for income purposes; and (3) sales comparison approach
which looks at the recent actions of buyers within the subjects market area and
what they have recently paid for similar properties. Adjustments are made
for differences in components, features, condition, etc. and a determination of
value can be made base on these adjusted sales prices. ]
A completed report may have only used 1 approach or all 3 approaches to value
depending on the scope of work established by the client at the time of the
assignment. The report will consist of 6 pages of the appraisal as well as
interior & exterior photos of the subject, exterior photos of the comparable
sales, sketch of the property, plat map, location maps, flood hazard area map,
addendums and other exhibits as needed.
[A comparative market analysis(CMA) is a valuation service
provided by a Realtor as an aid in determining the list price of a home to be
placed on the market for sale. This service does not require the realtor
to hold an appraisers license or certification. This process is typically
a simple process that matches sales in the area of the subject with their
reported(not measured) gross livable area to arrive at an average price per
square foot. This method is random at best, in many cases inaccurate and
this square foot method is not a recognized approach to value by USPAP.
The Realtor most often does not take into consideration adjustments to the area
market sales for components such as overall condition, age, lot size, physical,
functional or external obsolescence, gross livable area, features, upgrades,
covered parking, zoning compliance, flood hazard area determination, safety
issues, additions or conversions of rooms into livable areas, favorable
financing, etc., etc.
These figures are also skewed by the realtors involvement
with the property. figures may be changed to a favored result as an
enticement to secure a listing agreement, which is why a Realtors CMA would
never be used by a lender in determining the possible approval of a loan.
An appraisal report from a licensed or certified appraiser is a true
disinterested 3rd party source that is paid a fee for service in providing an
accurate appraisal report regardless of the outcome or any value generated.]
[Private mortgage insurance (PMI) is an insurance policy
that is paid for by the borrower on a monthly basis to cover the difference
between the total loan amount on a property and a determined loan-to-value
ratio(LTV) established by the lender(usually 80%). If a borrower provides
a 10% down payment on a loan to purchase or refinance their home, and the
lenders preferred loan-to-value ratio is 80% then the lender will place a PMI
payment on the loan to cover the risk of the remaining 10% LTV.
This payment can usually go away when the equity in the
home has exceeded this 80% LTV. this is accomplished with an appraisal
report showing a current market value in excess of 20% of the original loan
amount. Check with your current lender as sometimes these LTV's can change
and minimum time limits to season the loan are sometimes imposed before allowing
PMI to be removed. Some lenders also require that their in-house staff
appraisers perform the PMI removal appraisal so it is best to get all of that
information from your current lender.]
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[No. An appraisal inspection looks at the overall condition of the
dwelling and it's components in order to compare them to the market area in
determining value. This is accomplished from a readily observable ground
level limited visual inspection. this limited inspection does not open up
walls, outlets or windows and does not involve entering the attic space,
climbing on the roof or inspection of the working components of any of the
mechanical items.
A Complete visual inspection is more accurately defined as an observation of
features, fixtures and obvious conditions typical to the appraisal industry
whereby data is collected for the estimating of current market value. It
is not intended to be a physical condition report involving testing or
inspection of otherwise hidden areas. The appraiser has no training, skill,
expertise or competence to perform any of these tests. Any conditions
observed during the limited inspection outside of the appraisers field of
expertise will require further investigation by a professional in the field of
question.]
How do I
prepare for the appraisal inspection?
The appraiser will need access to all areas of the interior and exterior of
the home. If rooms are locked, someone is sleeping or there is otherwise
no access to an area of the home, the inspection will have to be rescheduled.
This includes all bedrooms, bathrooms, living areas, closets, attic access as
well as patio's, Arizona rooms, garages, carports and storage areas. If
available, any side yard gates and garage door should be unlocked or opened for
easier access. Also have handy a detailed list of any capital improvements
made to the home within the past 5 years including an estimated cost of these
items.
Any additional information regarding additions or conversions into livable
area, building permits, affidavits of disclosure, home owners association
information, transfer of ownership records, shared well agreement, private road
maintenance agreements, special assessments, deeds of trust, proof of recent
repairs or knowledge of recent sales or activity within the subdivision should
be made available for the appraisers inspection and review. he appraiser
will spend from 25 minutes to 1 hour at the residence for the limited
inspection. Ask any questions you wish while the appraiser is at the
residence, however keep in mind that you may or may not be the appraisers
client, and therefore the appraiser would be limited to the answers he or she
could provide. You also maybe or may not be entitled to a copy of the
completed report depending if you are an intended user of the report as
established at the time of employment based on the clients scope of work
limitations and stated intended users.
Other parties who receive a copy(or partial copy) of the appraisal report and
are not indicated by the lender/client as intended users do not become intended
users simply because they are in possession of an appraisal report.
reliance upon an appraisal report by a third party not so named and not directly
associated with the intended use are acting beyond the reasonable limits of the
report and therefore this appraisal office owes no duty.
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Copyright © 2006 [James Bobb & Associates, Inc.] All rights reserved.
Revised: 09/20/06.
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