Colorado Appraisal Advantage has answers to "Frequently Asked Questions"
What is an appraisal?
What is an appraisal?(Back to top) The method of performing an appraisal deals with an estimation which forms an opinion of value. This opinion or estimate is concluded through the use of a formal process that commonly uses the three main "common approaches to value". The Cost Approach is one of the methods that appraisers use to find value; it involves concluding what the improvements would cost without physical degradation, plus the land value. The most common approach in figuring the likely sales price of a house is the Sales Comparison Approach which deals with concluding a comparison to similar properties close by. Being the most popular approach, the Sales Comparison Approach is considered the most accurate and best indicator of market value for a residence. The Income Approach is mainly used for determining the market value of income-producing properties based on what an investor would pay based on the amount of income a property would bring in.
Describe what an appraiser does(Back to top) An appraiser provides a fair and credible assessment of market value, often in the context of a real estate sale. Appraisers illustate their expert analysis in appraisal reports.
Why would someone request a real estate appraisal?(Back to top) There are a lot of reasons to purchase an appraisal from Colorado Appraisal Advantage with the most common reason being real estate and mortgage transactions. Some other reasons for obtaining an appraisal include:
How is an appraiser different than a home inspector? (Back to top)Home inspectors do not come to an opinion of value and are not appraisers. The purpose of a home inspection is to investigate the structure of the home from basement to top. For the most part, a home inspection report will discuss the amenities and the requirements of the house: air conditioning (weather permitting), electrical services, the condition of the heating system, the plumbing; then the structural integrity of the home such as the attic, exposed insulation, walls, floors, ceilings, windows, then the foundation, basement and visible structures.
Is an appraisal the same as a comparative market analysis(CMA)?(Back to top) To be honest, they share nothing in common. The CMA relies on vague market trends. An appraisal utilizes comparable sales that can be validated by public record. In addition, the appraisal looks at other factors like condition, location and construction costs. A CMA delivers a "ball park figure." An appraisal delivers a defensible and carefully documented opinion of value.
But the most significant factor is the person creating the report. Real estate agents, who may not have a complete understanding of valuation methods or the entire market, create CMA's. A certified, state licensed professional who has formed their livelihood on valuing real estate in and around El Paso County creates the appraisal. Moreover, the appraiser is an unbiased party, with no conditional interest in the value conclusion, unlike the real estate agent, who gets a commission based upon the value of the home.
What are the contents of an appraisal report? (Back to top)The main point of an appraisal report is to let the reader know the value of the real estate in question, and depending on the scope of the report, one will customarily see the following:
Once the appraisal has been delivered, what assurance is there that the final number is valid?(Back to top) In the documentation of an appraisal, each appraiser must ensure the following:
Who hires Colorado Appraisal Advantage(Back to top) Mortgage lenders are an appraiser's typical client, requiring their services to ensure property involved in a mortgage transaction is adequate collateral for a loan. Attorneys and CPAs also retain the services of appraisers for divorce and estate settlements.
Where does an appraiser get the information used to estimate values in El Paso County or other areas?(Back to top) Collecting information is one of the primary activities of an appraiser. Data can be described as either Specific or General. Specific data is gathered from the property itself; Location, condition, amenities, size and other specifics are noted by the appraiser while on site.
General data is gathered from a number of places. To find out about recent sales to be used as "comps", an appraiser will often use the local Multiple Listing Service. Tax records and other courthouse documents verify actual sales prices in a market. Flood zone data is available from FEMA data outlets, such as a la mode's InterFlood product.
And most importantly, the appraiser gathers general data from his or her collective knowledge gained from creating appraisals for other houses in the same market.
Why should I hire a licensed appraiser?(Back to top) An appraisal is a worthwhile whenever the value of your home is relevant to some financial decision. For those selling a home, you'll want to figure out 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. If you're buying, it makes sure you don't overpay. For people settling an estate or divorce, an appraisal from Colorado Appraisal Advantage is the best documentation to ensure assets are split up evenly. Simply put, a house is often the single, largest financial asset anybody owns. Knowing its true value is essential to making informed financial decisions.
My mortgage statement has an item on it for PMI? Can I get rid of that?(Back to top) PMI is short for for Private Mortgage Insurance. This supplementary plan guards the lender in case a borrower defaults on the loan and the market price of the home is less than the balance of the loan. You can have your PMI dropped once you've achieved 20% equity in your home through appreciation and principal payments.
How do I get ready for the appraiser?(Back to top) The first step in most appraisals is the property inspection. During this process, the appraiser will come to your home and measure it, determine the layout of the rooms inside, confirm all aspects of the home's general condition, and take several photos of your house for inclusion in the report. On the home's interior, make sure it is clutter free and that we can get to things like furnaces and water heaters. In the yard, trim any bushes so we can be free to get an accurate measurement of outside walls.
To help speed things along as well as ensure a more accurate report, attempt if possible to have the following items:
Define "Market Value"(Back to top) In real estate appraising, Market Value is commonly defined as:
Who has rights to the appraisal report?(Back to top) For mortgage transactions, the lender requests the appraisal, either directly or through a third party. While the buyer pays for the report as part of the closing costs, the lender retains the right to use the report or any information contained within. The buyer is certainly entitled to a copy of the appraisal - it's usually included with all the other closing documents - but is not entitled to use the report for any other purpose without permission from the lender.
It's different when it's the homeowner hiring the appraiser for things outside securing a mortgage. In these scenarios, the appraiser may state how the appraisal can be used; for PMI removal, or estate planning or tax challenges, for example. If not stated otherwise, the home owner can do whatever they want with the appraisal.
Which home renovations add the most to the price?(Back to top) A home's location - what city it is in and even what part of that city - is key to this popular question. For example, if you're in a neigborhood of small to medium priced homes, a media room may not be something people in that price range want
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 were second, yielding 85%. Adding bedrooms and baths can also boost the value of your home (when done well) as long as your home doesn't then become overbuilt for your neighborhood in terms of size.