What is the role of an Appraiser?

Real estate is expensive and changes hands much less frequently than most commodities. For this reason, the market value of any particular property is often difficult to determine. The role of a real estate appraiser is to help their clients to systematically determine the market value of a property, which is one of the first steps in any real estate transaction whether you are a buyer, seller, lender, or other interested party. Here are some further details about the role of a real estate appraiser.

An Appraiser is an Appointed Expert

Appraisers gain their title by being appointed by judicial or quasi-judicial authorities in their local jurisdiction. The services of a skilled appraiser are highly valued by banks, lenders, and other parties who care about the value of property because with their expertise, they are able to wade through the many significant factors that affect the market value of a home such as its size, structure, design, and location, and arrive at a knowledgeable market value estimate.

An Appraiser’s estimate is Broadly Relevant

After determining the value of a property, an appraiser provides you with a written report, which is then used as the basis for mortgage loans, taxes, settling estates, divorces, and more. The report is sometimes also used by a buyer and seller to determine a sale price. However, the most common usage of appraisers in the United States is for mortgage valuations: banks need to know how much your potential home is actually worth on the market before they agree to loan you the money for a mortgage.

In the unfortunate event that you default on your payments and are unable to pay back your debts, your lender needs to know they can sell the property for enough money to cover the amount they loaned you, and they confirm the amount through the work of an appraiser. Because of the importance of accurate appraisals, most appraisers use a standardized form, such as the Uniform Residential Appraisal Report, as a guideline for their valuation.

What Exactly Do Real Estate Appraisers Do?

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A real estate appraisal aims to pinpoint a property’s market value for your lender, as well as other relevant information related to a sale process, such as estimated time to sell and location. Your bank will need an appraisal for the final parts of your mortgage approval process, in order to confirm that your home will at least sell for the amount of your loan in case you default and they need to recover their money.

Remember ? an appraisal is for your bank, not you. Don’t confuse it with a Comparative Market Analysis. Real estate agents use CMAs to help sellers find the best price to list their homes at. A good CMA will probably come up with a value close to the appraisal value, but the two will likely be different due to the different priorities sellers and banks have. So what actually happens in an appraisal?

• An appraisal report will be very detailed. Banks like to have as much information as possible, so the more detail in the report, the more they can be confident in your property’s value.
• The report will include standard information about your potential home, such as size, bedrooms, area, outside property and yard space, and all of the other normal descriptions of a house.
• On top of detailed information about the property, an appraisal report will also contain side-by-side comparisons with similar houses to give an idea of the neighborhood and how reasonable the home’s pricing is.
• If your potential home has poor access or a long private driveway, these will also be included in the report along with anything else the appraiser thinks might be harmful to the bank’s ability to sell the property.
• If there are any serious problems or obvious signs of damage, these will obviously be included in the report. Remember ? an appraiser isn’t a home inspector, so he won’t be actively looking for problems or signs of damage.
• Your appraisal report will also have a rough estimate of how long your home would take to sell, given the real estate market in the area.
• There are usually two ways price is obtained through an appraisal ? either a comparison with similar homes that have sold in the same location, or a cost estimate that tries to place the material price of rebuilding the home.
• Personal approval for a mortgage happens early in the process, but there will always be an escape clause for a bank if the appraisal is unsatisfactory.
• If your lender lets you choose the appraiser, make sure they are on your lender’s approved list or the appraisal may be rejected outright.

Why do you need an Appraisal?

Verification of your on-time payment history via your credit score will be a large factor in qualifying for your mortgage, but due to the hefty size of most home loans, banks require a little extra security. The appraisal comes in as your lender’s extra insurance that he won’t lose money on your loan ? something most banks aren’t fond of.

The appraisal serves to guarantee that the house will sell for enough to cover the cost of your loan in the unfortunate event that you default on your mortgage. In this case, the bank’s last option is usually a foreclosure, in which they sell your house to recoup those losses, so it’s important to them that they’re able to get a decent price.

What does an Appraisal entail?

An appraisal will usually cost less than four hundred dollars, comprising of either a comparison of your potential home with similar houses in the neighborhood, or an evaluation of the property’s replacement cost plus a decent estimate of the land’s value if your house is new. Updated appliances, plumbing, electrical work, roofing, windows, landscaping, and more can all improve your appraisal.

Warning!

An appraisal affects your bank’s profits so they should be carefully directing the process, preventing any mistakes from being made. But in case some choice is left to your discretion, make sure your appraisal is done by one of your lender’s approved appraisers to prevent any appraisal-rejection issues.

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Why Should You Appraise Your Home: with Jazmin Quintero-Watson of Aztec Appraisals

Tell us a little bit about your company and its foundation.

Aztec Appraisals, LLC opened our doors in 2005. Hispanic and, woman-owned small business. We started with 2 AMC’s, and are now on the list of every major AMC and top lender’s pre-approved appraiser lists. David Watson has been an appraiser for almost 13 years. We are both licensed Realtors as well so, we certainly understand the importance of an accurate and detailed opinion of value. We have completed numerous high end property appraisals as high as $5 million dollars in value, and over 13,000 square feet. Living in such a diverse metroplex, we also receive numerous requests from clients who prefer to have a Spanish-speaking appraisal representative to answer questions and put their mind at ease. When we call the borrowers, we make sure I answer any and all questions and explain the appraisal process in detail. Customer service is our #1 priority!

What is a list of reasons someone should appraise their home?

Divorce, refinancing, purchase, estate, if a Realtor or seller wants to have an idea of what to list their property for, and fighting taxes. Most recently, many Realtors have requested our services to measure their properties to determine the exact square footage for listing purposes since other sources are not considered as reliable.

How are home appraisers paid?

The price is determined by the complexity, and in some cases, distance of the appraisal. In general, when we complete an appraisal for an appraisal management company(standard fees apply and if more complex, the rate increases). We cover Harris, Fort Bend, and also have extensive experience in Montgomery, Galveston, Brazoria, and Waller counties.

How long does an appraisal take?

The actual appraisal visit varies since it really just depends on the characteristics of the property…,square footage, custom features/amenities, if it’s on acreage, if it has outbuildings, etc. So, for example, a 2000 square foot property with no major complexities could take about 45 minutes. As far as turn-time, we do our best to get the report back to our clients within 2-4 business days. Although we do receive quite a bit of “Rush” requests to make closing dates!

What is the best way for people to reach you and or your company?

We can be reached at 832-567-1124. Please feel free to visit us on our website at www.aztecappraisals.net and email jazmin@aztecappraisals.net

By Jazmin Quintero-Watson

How an Appraisal Report is Compiled

Each appraisal report contains a variety of figures, property details and sales comparisons. This includes current specs of the subject property, and a side-by-side comparison of three similar properties. The report will provide an estimate of the average sales time for the property, the type of area the home is in (stand alone acreage, development, etc.). The appraiser may point out details about the subject property that are detrimental to its value, i.e. obstructed access to the home, and highlight any apparent characteristic flaws, such as a crumbling foundation. The appraiser also evaluates the overall market in the area, detailing the volume of transactions and average DOM (days on market) and home values for the neighborhood.

There are two appraisal methods used for residential properties. The first is known as the cost approach. Formerly referred to as the summation approach, this is applied to newly built properties, where the costs to build are known. The figure given is an estimate of how much it would cost to replace the structure if it were destroyed. It’s calculated as a hybrid of the cost and sales comparison approaches i.e., the replacement cost of a home is determined by adding the labor, material, and other costs, with consideration for land values and depreciation.

The second approach, a sales comparison, determines the home’s market value by comparing it to similar properties recently sold in the area. As no two properties are ever alike, the appraiser must make paperwork adjustments to the comps to make their features more in sync with the subject property. The resulting figure shows what each comp would have sold for if it had the same specs as the subject.

What’s Included in an Appraisal Report

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An appraisal is a survey of a home performed by a licensed, independent professional to determine the home’s market value. The appraiser documents the property’s interior and exterior condition, from the layout, amenities and features, modernization updates, and the overall construction quality.

Appraisals typically happen for one of two reasons: a lender orders one prior to approving a loan for a home buyer, or the property’s current owner orders one to assess its value before putting it on the market. The Equal Credit Opportunity Act mandates that your lender provide you with a copy of the appraisal report upon your written request.

The appraiser estimates the GLA (gross living area) in square footage by measuring the exterior of the home. Finished basements and non-living areas such as garages aren’t included in the GLA estimate, but are documented and considered in value separately. This information will guide the appraiser throughout the comparison and valuation process.

In most cases, the appraiser only considers permanent structures and real property. As most small sheds and above-ground swimming pools are not permanent fixtures, they are usually excluded in the valuation. However, the specific installation process and local custom, may allow an above ground pool or small shed to be considered as part of the real property.

Appraisals are vital reports in the real estate market, because they are relevant to buyers, sellers, and lenders. The value that an appraiser determines in their appraisal report ultimately sets the guideline for what a lender is likely willing to lend to a potential buyer. Given that is such an important element of any real estate transaction, it is useful to know what a typical appraisal report contains. Here are more details about the contents of an appraisal report.

Elements to be included in the Appraisal Report

In the Appraisal Report, the appraiser documents:

• The property’s interior and exterior condition, from the layout, amenities and features, modernization updates, and the overall construction quality.
• An estimate of the GLA (gross living area) in square footage by measuring the exterior of the home.
• Living areas only, and excludes finished basements and non-living areas such as garages, which are instead documented and considered in value separately.

The information in an Appraisal Report will guide the appraiser throughout the comparison and valuation process. In most cases, the appraiser only considers permanent structures and real property. As most small sheds and above-ground swimming pools are not permanent fixtures, they are usually excluded from the valuation as well.

Two Appraisal Methods

There are two appraisal methods used for residential properties, the cost approach and sales comparison. The former is applied to newly built properties, where the costs to build are known. The figure given is an estimate of how much it would cost to replace the structure if it were destroyed. A sales comparison determines the home’s market value by comparing it to similar properties recently sold in the area. As no two properties are ever alike, the appraiser must make paperwork adjustments to the comps (compared property) to make their features more in sync with the subject property. The resulting figures show what each comp would have sold for if it had the same specs as the subject.

How Long is an Appraisal Good For?

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An appraisal report details several crucial bits of figures concerning prices and vales. One number you likely won’t see is an expiration date for the appraisal itself. Most loan agreements don’t specify the timeframe for when an appraisal is considered expired.

Different lenders have different time frames before they consider an appraisal expired, typically spanning between 60-90 days, never exceeding 180 days (6 months). Lenders want to have a current snapshot of the market surrounding the appraised home, which is why they require comparable sales figures (or “comps”) that are no more than six months past, meaning the appraisal should be no more than six months old. Most appraisers and lenders agree six months is the maximum amount of time that an appraisal is considered valid, known as the “term of validity.”

Lenders want an appraisal to use comps as close to the appraised home as possible, with few adjustments needed to match them up. Within six months is the preferred window, but they may stretch to a year if a sufficient number of newer comps are not available.

Expired appraisals can be recertified for another 90 days. Recertification is the appraiser confirming that the values are still accurate based on comparables in the area. Many times, if new information isn’t available, they will use the same comparables. Most appraisers charge a reduced fee for recertified appraisals.

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By Derren Peters

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