Real Estate/Mortgage Transactions
Every year, countless people in the United States buy, sell or refinance
their home, if not all, of these transactions include a simple line item for
an appraisal. It has become an understood and accepted part of a real
estate transaction. ''Let's bring in the expert and make sure we're not
spending too much on this property.''
Property Tax Challenges
Challenging tax assessments has become an annual ritual in many parts
of the country. Unfortunately, most people go into these challenges
unarmed. They may pull some information from the internet to support
their claims, but have no real basis other than: ''It wasn't worth that much
last year.''
A real estate appraiser can help in these situations. While it may not be
economical to commission a full appraisals to lop a few hundred off your
tax bill, often an appraiser can do a limited appraisal or neighborhood
analysis for much less. These documents can carry a lot of weight when
you appear before an appeals board.
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. Very often, this
additional payment is folded into the monthly mortgage payment and is
quickly forgotten. This is unfortunate because PMI becomes unnecessary
when the remaining balance of the loan - whether through market
appreciation or principal paydown - dips below this 80% level. In fact, 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.
Many appraisers offer a specific service for home owners that believe
they have met the 80% loan-to-value metric. For a nominal fee, the
appraiser can provide you with a statement regarding the home value.
Some will even take the next step and help you file a challenge with your
mortgage company. The costs of these services are very often
recovered in just a few months of not paying the PMI.
Pre-Sale Decisions
Before someone decides to sell a home, there are several decisions to
be made. First and foremost: ''How much should it sell for?'' But first
there may be other equally important questions to ask: ''Would it be
better to paint the entire house first?'' ''Should I put in that third
bathroom?'' ''Should I complete my kitchen remodel?'' Many things which
we do to our houses have an effect on their value. Unfortunately, not all of
them have an equal effect. While a kitchen remodel may improve the
appeal of a home, it may not add nearly enough to the value to justify the
expense.
Appraisers can step in and help make these decisions. Unlike a Realtor,
an appraiser has no vested interest in what amount the house sells for.
His fee is based on his efforts, not a percentage of the sales price. So
seeking a professional appraisal can often help homeowners make the
best decisions on investing in their homes and setting a fair sales price.
Estate Planning, Liquidation or Divorce
The loss of a loved one is a difficult time in life. Likewise, a divorce can
be a particularly traumatic experience. Sadly, these events are often
complicated by difficult decisions regarding the disposition of an estate.
Unlike many wealthy individuals, the majority of Americans do not have
dedicated estate planners or executors to handle these issues. Also, in
most cases, a home or other real property makes up a disproportionate
share of the total estate value.
Here too, an appraiser can help. Often the first step in fairly disposing of
an estate is to understand its true value. Where property is involved, the
appraiser can help determine the true value. At this point, equitable
arrangements can more easily be arrived at among disputing parties.
Everyone walks away knowing they've received a fair deal.
There are other uses for real estate appraisals. The highly-trained
individuals behind these services are always looking for ways to put their
expertise to work for home owners and the people who support them.
Myth: Assessed value should equate to market value.
Reality: While most states support the concept that assessed value
approximate estimated market value, this often is not the case. Examples
include when interior remodeling has occurred and the assessor is unaware of
the improvements, or when properties in the vicinity have not been reassessed
for an extended period.
Myth: The appraised value of a property will vary, depending upon whether the
appraisal is conducted for the buyer or the seller.
Reality: The appraiser has no vested interest in the outcome of the appraisal
and should render services with independence, objectivity and impartiality - no
matter for whom the appraisal is conducted.
Myth: Market value should approximate replacement cost.
Reality: Market value is based on what a willing buyer likely would pay a willing
seller for a particular property, with neither being under pressure to buy or sell.
Replacement cost is the dollar amount required to reconstruct a property in-kind.
Myth: Appraisers use a formula, such as a specific price per square foot, to
figure out the value of a home.
Reality: Appraisers make a detailed analysis of all factors pertaining to the
value of a home including its location, condition, size, proximity to facilities and
recent sale prices of comparable properties.
Myth: In a robust economy - when the sales prices of homes in a given area are
reported to be rising by a particular percentage - the value of individual
properties in the area can be expected to appreciate by that same percentage.
Reality: Value appreciation of a specific property must be determined on an
individualized basis, factoring in data on comparable properties and other
relevant considerations. This is true in good times as well as bad.
Myth: You generally can tell what a property is worth simply by looking at the
outside.
Reality: Property value is determined by a number of factors, including location,
condition, improvements, amenities, and market trends.
Myth: Because consumers pay for appraisals when applying for loans to
purchase or refinance real estate, they own their appraisal.
Reality: The appraisal is, in fact, legally owned by the lender - unless the lender
"releases its interest" in the document. However, consumers must be given a
copy of the appraisal report, upon written request, under the Equal Credit
Opportunity Act.
Myth: Consumers need not be concerned with what is in the appraisal document
so long as it satisfies the needs of their lending institution.
Reality: Only if consumers read a copy of their appraisal can they double-check
its accuracy and question the result. Also, it makes a valuable record for future
reference, containing useful and often-revealing information - including the legal
and physical description of the property, square footage measurements, list of
comparable properties in the neighborhood, neighborhood description and a
narrative of current real-estate activity and/or market trends in the vicinity.
Myth: Appraisers are hired only to estimate real estate property values in
property sales involving mortgage-lending transactions.
Reality: Depending upon their qualifications and designations, appraisers can
and do provide a variety of services, including advice for estate planning,
dispute resolution, zoning and tax assessment review and cost/benefit analysis.
Myth: An Appraisal is the same as a home inspection.
Reality: An Appraisal does not serve the same purpose as an inspection. The
Appraiser forms an opinion of value in the Appraisal process and resulting
report. A home inspector determines the condition of the home and its major
components and reports these findings.
