Paragon Appraisal Group has answers to "Frequently Asked Questions"
What is an appraisal?
What is an appraisal?(Return to top) An appraisal report is an inspection allowing the appraiser to come to an opinion of value. This opinion or estimate is arrived at by using a formal process that generally utilizes three "common approaches to value". One of them is the Cost Approach - which is what it would cost to replace the improvements, less physical deterioration and other factors, then adding the land value. Another of the approaches is the Sales Comparison Approach - which concerns discovering a comparison to other similar properties within a close vicinity which have recently sold. The Sales Comparison Approach is normally the most accurate and best indicator of value for a residence. One of the least common approaches in appraising residential properties is the Income Approach, which is generally used to determine the market value of a property based on what an investor would pay based on the capital produced by the property.
Describe what an appraiser does(Return to top) An appraiser provides a fair and credible determination of market value, often in the context of a real estate exchange. Appraisers demonstrate their expert investigation in appraisal reports.
What would cause me to request a real estate appraisal?(Return to top) There are a lot of reasons to purchase an appraisal with the usual reason being real estate and mortgage transactions. Some other reasons for ordering an appraisal report include:
What is the difference between an appraisal and a comparative market analysis (CMA)?(Return to top) Frankly, it's like comparing broadband and dial-up. The CMA utilizes market trends to conduct most of their business. Appraisals use comparable sales which are valid resources. The appraisal report will also include location and building values. A CMA delivers a "ball park figure." An appraisal delivers a defensible and carefully documented opinion of value.
The credentials of the person behind the report is actually the biggest difference between a CMA and an appraisal. Real estate agents, who may not have a true grasp of valuation methods or the entire market, create CMA's. The appraisal is created by a licensed, certified professional who makes a living out of valuing properties. Moreover, the appraiser is an independent voice, with no conditional interest in the property's value, unlike the real estate agent, whose income is tied to the value of the home.
What's in an appraisal report? (Return to top)Every appraisal must reflect a supported estimate of value and must document the following:
After completing the appraisal, how can I have confidence that the value conclusion is legitimate?(Return to top) In communicating an appraisal report, each appraiser must see to it that each of the items below are covered:
Who employs appraisers?(Return to top) Mortgage lenders are an appraiser's most likely client, needing their services to ensure real estate 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 Paragon Appraisal Group get the information used to estimate values in Contra Costa County or other areas?(Return to top) One of the most important things an appraiser does is to compile data. Data can be categorized as either Specific or General. Specific data is gathered from the home itself; Location, condition, amenities, size and other specifics are gathered by the appraiser during an inspection.
General data is gathered from a variety of places. To research recently sold homes to be used as "comps", an appraiser will often use the local Multiple Listing Service. To double-check actual sales prices, we look at items in the assessor's office and other public documents. Appraisers routinely have to report when a property lies in a flood zone, so that information is retrieved from a FEMA data outlet such as a la mode's InterFlood service.
And last but not least, the appraiser assimilates general data from his or her collective knowledge gained from creating appraisals for other houses in the same market.
What can a full appraisal do for me?(Return to top) If you're making some sort of financial decision and the value of your home is relevant, you'll want to hire a licensed appraiser. 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. If you're engaged in an estate settlement or divorce, it ensures that property is divided fairly. Simply put, a home is often the single, largest financial asset anybody owns. Don't make decisions in the dark with a professional appraisal.
What exactly is PMI and how can I get rid of it?(Return to top) PMI is the common abbreviation for for Private Mortgage Insurance. It guards the lender in the event a borrower doesn't pay on the loan and the value of the house is lower than what is owed on the loan. Once you can prove the amount you owe on your home is less than 80% of the home's market value, you can make a case to your lender to drop the PMI.
Should I do anything in advance of the appraisal inspection(Return to top) The first step in most appraisals is the home inspection. 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 condition of its features. Inside, make sure it is clutter free and that we can find our way to things like furnaces and water heaters. On the outside, trim any bushes so we can be free to get an accurate measurement of outside walls.
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?(Return to top) In real estate appraising, Market Value (as opposed to Fair Market Value) is commonly defined as:
Once complete, who actually owns the appraisal report?(Return to top) For mortgage transactions, the lender orders 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 entitled to a copy of the report - 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 hires an appraiser directly. In these cases, 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 use the appraisal for any purpose.
Are some home improvements more worthwhile than others?(Return to top) The added value of a particular amenity truly depends on the local market. For example, adding a central air conditioner in to a home in the South may add significant value, while putting one in a home near the Pacific Northwest might not have much impact.
No matter where you go, however, renovating a kitchen is almost always a safe investment. 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, returning 85%. Adding bedrooms and baths can also help the value of your home as long as your home doesn't then become overbuilt for your neighborhood in terms of size.