HOW APPRAISALS AND APPRAISERS WORK
Why should I hire an appraiser?
The simple answer is to find out how much your property is worth. But a certified professional appraisal also can help with other matters, including taxes and eliminating private mortgage insurance. A certified and licensed appraiser can also help you with estate planning, analyzing the feasibility of proposed improvements, determining the best use for a property, and with insurance valuations.
What is market value?
Market Value as defined by the Canadian National Association of Real Estate Appraisers, is the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this description is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:
- buyer and seller are typically motivated
- both parties are well informed or well advised, and each acting in what he or she considers his or her best interest
- a reasonable time is allowed for exposure in the open market
- payment is made in terms of cash in the currency in use in the country of location of the property being appraised, or in the terms of financial arrangements comparable thereto
- the price represents the normal consideration for the property sold, unaffected by special or creative financing or sales concessions, granted by anyone associated with the sale.
How does an appraiser come up with a value?
By analyzing market data, including both historic and current comparable sales, current offers, pending sales, and proposed improvements. Then the appraiser compares your property to the broader market. The process may vary depending on why it is being done; for instance, an appraiser might weigh different factors more heavily for an insurance valuation than for a market valuation.
Where does an appraiser get this information?
From a wide variety of sources, including a local Multiple Listing Service, local real estate professionals, county assessment records, private data vendors, interviews with owners, his own database, and personal knowledge. The quality and reliability of each piece of information is weighed by the appraiser.
How long is an appraisal good for?
Although there is no fixed expiration date on an appraisal, most lenders consider them outdated after six months.
If I have five appraisers appraise my home will they come out with five different values?
Probably. If five prospective home buyers made offers on the same property, they would likely have five different offering prices. Therefore, it is common for different appraisers to calculate different values, although they should all be within a reasonable range, assuming each was completed at the same time and under the same conditions. On the other hand, different appraisal techniques could result in markedly different valuations. For example, a complete appraisal that includes an interior inspection might vary from a drive-by appraisal, which wouldn't provide accurate information about the updates, features, or condition of a property.
Does the appraisal serve as a home inspection also?
An appraisal is not the same as a home inspection. Although the appraiser documents condition and construction, the appraiser is typically not performing the function of a home inspector.
What does the appraiser look for inside my home and how long does it take?
Typically, an appraiser needs to document the condition of the interior, from the layout and features, to any updates, and construction. This information assists the appraiser in the valuation and comparison process. A physical inspection is usually only a small part of the overall appraisal process. How long it takes depends on how big and how complex your home is and the scope of work involved in the appraisal assignment.
How does the appraiser determine the square footage of my home's living area?
Generally, by measuring the exterior of the home. Non-living areas, such as garages or covered porches, aren't included.
Does the appraiser include my finished basement in the appraisal?
Finished basements are generally calculated separately from the above-ground living area. The local market will dictate the contributory value of the finished basement, which can be influenced by municipal regulations, the quality of the finish, and various other factors.
Does an appraiser include my above-ground pool or my shed in the appraisal?
The appraiser generally considers only permanent fixtures and real property. Because many above-ground pools and small sheds are not permanent structures, they usually aren't included in the analysis. Depending on the specific installation process, however, an above ground pool or small shed might be considered part of the real estate.
What improvements add the most value to my home?
How much any particular improvement will be worth to your home's market value, what appraisers call the contributory value, varies from market to market, driven by the wants and needs of each neighborhood. However, a local appraiser familiar with your market can help you figure out the best home-improvement value.
If my neighbors fix up their home will my property value go up?
Maybe, but the impact of neighborhood property improvements also varies widely from market to market. Again, consult with a local appraiser.
I have the biggest house in the neighborhood. If the appraiser users other home sales in my neighborhood for comparison, will that make my appraised value less?
Not necessarily. The appraiser will consider all relevant real estate data in the area. But when analyzing other recent sales, the appraiser generally will look for the homes most comparable to yours in terms of physical characteristics and the appeal of the location. In other words, the sales in your neighborhood might not make for the best comparisons if those homes are significantly more or less appealing. The appraiser may determine that the best for comparison home sales are in another neighborhood.
I am refinancing my house with a local bank. If my bank appraisal comes out higher than my tax value, will my taxes go up?
They shouldn't. The bank appraiser is expected to maintain confidentiality with the client, which in this case would be the bank, not the local tax authorities.
I recently refinanced my house. Am I entitled to a copy of my appraisal?
That depends on the bank, which in most cases is considered the client for the appraisal. Contact your lending institution with any questions about the appraisal and if you are entitled to a copy of the report.
Last year I refinanced my home and the appraiser came inside to do an inspection. This year I got an equity loan and the appraiser never came inside to do the appraisal. How can the appraiser arrive at a value without coming inside?
A drive-by appraisal utilizes a similar process for estimating market value as the full appraisal with interior inspection. However, the drive-by appraiser must rely on outside sources for their information. For example, the appraiser may check municipal records or a multiple listing service record to obtain the age, size, and other characteristics of your home. Although these records may not always be accurate, they provide some basic information to complete the appraisal assignment.