Section 10 _Why Do I Need an Appraisal?
Through
the years we have developed relationships with the very best Appraisal
Professionals in the industry. You can be assured your Appraisal
will be an exhaustive study in valuation of your most cherished
asset…your home.
A. Role of an Appraiser/Your
Appraisal
___Overview
by Richard L. Sorsby, President, Birchtree Appraisals, Inc.
An Appraiser is a state-licensed professional
who can establish the approximate value of your property based
on an analysis of recent market data gathered in your market area.
Your home is carefully inspected and measured, and detailed information
is recorded about the property such as:
Exterior photographs of your property
are taken at the time of inspection and are attached to the report
along with a map of the area. Similar information taken from public
records and other reliable data sources is gathered on three or
more recent sales of similar properties in your market area. Your
property is then compared with the comparable properties and adjusted
by the appraiser for market-perceived differences. The result
of this process is typically recorded on the Uniform Appraisal
Report.
The fee for an appraisal ranges from $275 to
$350 in the greater Western Tennessee area and is paid on the
day of the inspection by the borrower. If the property is a duplex,
the fee will be somewhat higher, as the work to complete an appraisal
of this property type is more complex.
FHA mortgage loans are government-backed loans,
which have additional requirements. In addition to providing an
estimate of value, the FHA-approved appraiser observes the property
for any visible deficiencies that may affect the livability of
the property or the health and safety of the property's occupants.
Items such as peeling lead-based paint, three or more steps without
a railing, several layers of roof shingles, rusty water heaters,
and leaking pipes are some of the concerns for the appraiser.
The fee for an FHA appraisal is typically somewhat higher than
for a conventional appraisal.
B. Appraisal Basics
___Overview
by Richard L. Sorsby, President, Birchtree Appraisals, Inc.
An appraisal of real estate is the valuation
of the rights of ownership. The appraiser must define the rights
to be appraised. The appraiser does not create value; the appraiser
interprets the market to arrive at a value estimate.
As the appraiser compiles data pertinent to a report, consideration
must be given to the amenities, site characteristics, location,
and other market influences as well as the physical condition
of the property. An appraiser may spend only a short time inspecting
the property, however, this is only the beginning of the task.
Significant research and collection of data must be completed
prior to the appraiser arriving at a final opinion of value.
Using three common approaches, which are all
derived from the market, the appraiser arrives at an opinion or
estimate of value.
- The first method is the SALES
COMPARISON APPROACH, which
uses other "bench mark" properties (comparables) of
similar size, quality and location that have recently sold to
determine value. This is by far the most commonly used approach
in residential appraising today.
- The second approach to value is the
COST APPROACH.
This method's approach derives value by determining what it
would cost to replace the existing improvements as of the date
of the appraisal, less any physical deterioration, functional
obsolescence and economic obsolescence.
- The INCOME APPROACH
is used in the appraisal of incoming-producing rental properties
and has little use in the valuation of owner-occupied, single
family dwellings. This approach provides an objective estimate
of what a prudent investor would pay based on the net income
the property produces.
In most states, banking regulations require
that residential appraisers be a "neutral third party"
and therefore, the appraiser may not be an employee of the lending
institution or mortgage broker; rather, appraisers are either
self-employed independent contractors, or employees of independent
appraisal firms. Since the appraisal process is required for almost
every loan transaction, and oftentimes plays an extremely critical
role in the overall analysis and final outcome of the loan request,
appraisal activities are monitored by State Appraisal Commissions.
The appraiser will want to know the purpose
of the appraisal, requested date of completion, and if the property
is listed for sale. If the property is listed, the appraiser will
need to know pertinent listing information. It is helpful to your
appraiser for you to have readily available documentation pertaining
to the property, such as deeds, surveys, fully executed purchase
agreements, copies of utility and tax bills. The appraiser will
also need to know what personal property, such as appliances,
are included in a Purchase Contract if you are buying or selling
a property.
If your property is income producing,
income and expense statements for the past two years and a copy
of the leases with your tenants may be required by the lender.
