Why Get An Appraisal?When do you need an Appraisal?
Every year, countless people in the United States buy, sell or refinance their own slice of the American Dream. Most, 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."
But is this the only reason to get an appraisal? Are there other times when the services of a certified, licensed, independent real estate professional might come in handy?
A real estate appraisal is needed to determine the estimated market value of a house, condominium, commercial property, vacant land, etc. It is used to assist someone in making a decision. They may be considering purchasing, selling, insuring, or lending money on a house, condo, commercial property, or vacant lot. Appraisals are also used for tax purposes to estimate how much money a property owner has to pay in taxes.
Here's a summary of some of the services a professional real estate appraiser can provide depending upon their qualifications:
- Residential and Commercial valuation estimates
- Estate planning and estate settlements
- Tax assessment review and advice
- Advice in eminent domain and condemnation property transactions
- Dispute resolution - including divorce, estate settlements, property partition suits, foreclosures, and zoning issues
- Feasibility studies
- Expert witness testimony
- Market rent and trend studies
- Cost/benefit or investment analysis, for example, what will be the financial return of remodeling a house, condo, or commercial property
- Land utilization studies
- Supply and demand studies
Banks and mortgage lenders need appraisals to assist them in figuring out how much money to lend someone for a mortgage loan application. There are many different aspects of a loan application that the banker has to consider, but mortgage lenders always require an appraisal since the real estate will be the collateral for the mortgage loan.
People get very emotional and excited about purchasing a house. When they're in this highly emotional and excited state, they tend to just look at the cosmetic appeal of a house instead of the important factors. They forget that they are not buying a CAR, they are buying a HOUSE!! There is a big difference between the two. One is a normal expense everyone has to incur occasionally. The other is the biggest financial decision most people will ever make. By becoming too emotionally attached to a deal, people often pay above market value for a home. This can cost them tens of thousands of dollars in an overpriced purchase. Since a house is such a major financial decision, it's prudent for them not to take any chances. People should try to eliminate as much risk as possible.
A pre-purchase appraisal will inform people of the true market value of a house. This will enable them to make an educated and intelligent decision on whether or not to purchase the home. They will also know the approximate amount to pay for it.
Pre-sale appraisals are recommended. Before someone puts their house up for sale, they should have it appraised to estimate the true market value. This will prevent any last minute holdups because of problems found during the buyers' bank appraisal. Any last minute problems will delay the sale or kill the deal altogether.
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.
Homeowners can hire an appraiser to do a feasibility study to assist them before starting home remodeling and renovation work. The appraiser conducting the study analyzes the condition of the property and the cost of the renovations. The appraiser will then prepare an estimate of what the property's value will be after the improvements are made (the improved value will affect the ad valorem real estate tax). This information will enable the homeowner not to spend too much or too little money with the renovations. The appraiser can also investigate whether a property qualifies for historic preservation benefits from Federal and local governments.
Homeowners can hire an appraiser when they need to insure the value of their home. (This is different from private mortgage insurance PMI). The insurable value is the cost of replacing the property if it were destroyed or damaged. This value can used to underwrite fire and hazard insurance on real estate. Although most reputable insurance brokers can tell you if your fire and hazard coverage is sufficient, there are properties that may require a closer examination, such as, older buildings, custom built homes, or properties with unusual features, such as solar energy collectors. An appraiser can give an opinion of the insurable value of the home by using the Cost Approach for their analysis.It's a running joke that every one has a different perspective of what a house is worth. And it's the tax assessor that seems to always come in at the high end of the scale! Challenging the tax assessment 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.
Homeowners can hire an appraiser to dispute the amount of their property taxes. Many people do not realize that they can be over charged for their property tax assessments. Homeowners need to hire an appraiser if they believe their property taxes are too high. An appraiser can estimate the market value of their house and then the homeowner can try to have their property taxes reduced.
A real estate appraiser can help in these situations. While it may not be economical to commission a full appraisal 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.
Homeowners can hire an appraiser if they need to cancel Private Mortgage Insurance (PMI). New homeowners are frequently required to obtain private mortgage insurance, but because of legislation passed by Congress in 1998, homeowners can cancel this coverage when their loan to value ratio reaches 80 percent. An appraiser can estimate the current value of the home, which will assist the homeowner in deciding whether to ask the lender to drop the PMI.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.
Relocation firms always need real estate appraisals during the process of employees being transferred to a new location by their employers. Sometimes, the relocation firm or employer will purchase an employee's home if the employee is unable to sell the home during a specified time period. A relocation appraisal is an estimate of the anticipated sales price which a home will sell in the current market within a reasonable length of time. The "length of time" in the appraisal valuation depends on the conditions in the area where the home is located. The definition of anticipated sales price indicates, "a reasonable marketing period, not to exceed 120 days and commencing on the date of appraisal (inspection), is allowed for exposure on the open market."
Appraisers are needed during property condemnation proceedings, also known as, Eminent Domain. Appraisers often are asked to estimate "just compensation" in situations where the Federal, State, or Local governments take ownership of private property for public use. This happens in situations such as, to build a road, public park, expand an airport, etc. The law requires that owners of the condemned property, (property taken by the government in this manner), must be paid a fair price.
Appraisers are also hired to give an opinion of value of property for gift or inheritance taxes, lease rental schedules, and other investment purposes. 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.
The majority of lenders now require that the appraisal information be 3 months or less in age. Lenders have really cut back on this because of the fall out in certain markets.