Michael Hodges Appraisals, Inc. has answers to "Frequently Asked Questions"
What is an appraisal?
What is an appraisal?(Go to list of questions) An appraisal report is an evaluation leading to an opinion of value. The appraiser will typically use a number of "approaches," typically three, to draw up the estimation of market value. The Cost Approach is one of the processes that real estate appraisers use to find the value of a home; it involves concluding what the improvements would cost minus physical degradation, plus the land value. Easily the most common approach in figuring the likely sales price of a home is the Sales Comparison Approach which deals with making a comparison to comparable houses close by. The Sales Comparison Approach is normally the most accurate and best indicator of value for a residential property. The Income Approach is primarily used for determining the market value of income-producing properties based on what an investor would pay based on the amount of capital a property produce.
What does an appraiser do?(Go to list of questions) An appraiser offers a fair and credible assessment of market value, in the support of real property transactions. Appraisers present their professional conclusions in appraisal reports.
What would cause me to need your services?(Go to list of questions) There are many reasons to order an appraisal from Michael Hodges Appraisals, Inc. with the usual reason being real estate and mortgage transactions. Other reasons for purchasing an appraisal report include:
Is an appraisal the same as a home inspection? (Go to list of questions)The appraiser is not a home inspector nor does he/she do a comprehensive home inspection. An inspection is a third-party evaluation of the livable structure and mechanical systems of a house, from the top to the bottom. The stereotypical house inspector's report will contain an evaluation of the integrity of the property's heating systems, central air conditioning system (temperature permitting), interior plumbing and electrical systems, the roof, attic, and visible insulation, walls, ceilings, floors, windows and doors, the foundation, basement, and visible structure.
My agent performed a CMA for me. Is that the same as an appraisal?(Go to list of questions) Honestly, they have nothing in common. The CMA relies on indefinite market trends. The appraisal relies on specific verifiable comparable sales. In addition, the appraisal looks at other factors like condition, area and replacement costs. A CMA delivers a "ball park figure." An appraisal delivers a defensible and carefully documented opinion of value.
But the biggest difference is the person behind the report. Real estate agents produce CMA's, and they don't always know the whole market or bear specific competence when it comes to home valuation. A certified, Arkansas licensed professional who made their livelihood on valuing homes in and around Pope County is behind the appraisal. Further, the appraiser is an unbiased party, with no vested interest in the property's value, unlike the agent, who gets a commission based upon the price of the home.
What's in an appraisal report? (Go to list of questions)Every appraisal should demonstrate a believable estimate of value and must clearly state the following:
Upon completion of the report, what assurance is there that the value indicated is veritable?(Go to list of questions) In the documentation of an appraisal, each appraiser must see to it that each of the items below are covered:
Who engages the services of appraisers?(Go to list of questions) Most of the time, appraisers are hired by mortgage lenders to estimate the value of real estate involved in a loan transaction. Appraisers also provide opinions in litigation cases, tax matters and investment decisions.
Where does an appraiser get the data used to estimate values in Pope County or other areas?(Go to list of questions) Compiling data is one of the primary occupations of an appraiser. Data can be divided into Specific or General. Specific data is from the property itself; Location, condition, amenities, size and other specifics are gathered by the appraiser while on site.
General data is received from a numerous places. To research recent sales to be used as "comps", we typically go to the local Multiple Listing Service. Tax records and other public documents reveal actual sales prices in a market. Flood zone data is gathered from FEMA data outlets, such as a la mode's InterFlood service.
And most importantly, the appraiser assimilates general data from his or her past experience in doing assignments for other houses in the same market.
Why should I hire a licensed appraiser?(Go to list of questions) If you're involved in some sort of financial decision and the value of your home matters, you'll want an appraisal. For those selling a home, you'll want to determine the price that gets you the most profit but also ensures you don't have to wait too long for a buyer to show up; an appraisal can help with that. When buying, you can avoid overpaying by commissioning an independent appraisal. If you're engaged in an estate settlement or divorce, it ensures that property is divided fairly. A home is often the single, largest financial asset anybody owns. Knowing its true value means you can make wise financial decisions.
My mortgage statement has an item on it for PMI? Can I get rid of that?(Go to list of questions) PMI is the common abbreviation for for Private Mortgage Insurance. This additional policy covers the lender in case a borrower doesn't pay on the loan and the market price of the property is less than what the borrower still owes on the loan. Once you reach the point where your home's equity plus the amount you've paid is at least 20% of your loan balance, you can have your PMI dropped.
Should I do anything in advance of the appraisal inspection(Go to list of questions) We start with an inspection of the home. What this entails is the appraiser, after setting up an appointment, personally going through the home - recording the layout of the rooms, taking photos and documenting the general status of its features. The best thing you can do to help is make sure the appraiser has easy access to the exterior of the house . Trim any bushes and move any items that would make it difficult to measure the structure. On the inside, make sure we can easily access appliances like furnaces and water heaters.
The following items, if available, will help your appraiser to provide a more accurate appraisal in a shorter period of time:
What does "Market Value" mean?(Go to list of questions) In real estate appraising, Market Value (as opposed to Fair Market Value) is commonly defined as:
Once complete, who actually owns the appraisal report?(Go to list of questions) For mortgage transactions, the lender requests the appraisal, either directly or through a third party. Even though it's the buyer that eventually pays for the report, the lender is the intended user. The buyer is certainly entitled to a copy of the appraisal - it's usually bundled with all the other closing documents - but is not allowed to use the report for any other purpose without permission from the lender.
The exception to this rule is when a home owner engages an appraiser directly. In these situations, the appraiser may define the purpose of the appraisal; for PMI removal, or estate planning or tax challenges, for example. If not stipulated otherwise, the home owner can do whatever they want with the appraisal.
Are some home improvements more worthwhile than others?(Go to list of questions) This really depends on where the home is. For example, putting in an inline humidifier could be nice in arid regions, but completely useless near the coast!
As a rule, the best ROI from renovating a home comes in the kitchen. One recent study revealed that putting $20,000 into a kitchen remodel would add about $17,500 to the value of the home - or about an 88% return on investment. Bathrooms weren't far behind, yielding 85%. On the contrary, work that may not add value would be painting just for the sake of redecorating.