Davenport Real Estate Appraisal Services - West Haven CT - loridavenport@yahoo.com - ph: 203-605-8088 - fx: 203-653-6880

An appraisal is an unbiased estimate of what a buyer might expect to pay - or a seller receive - for a parcel of real estate, where both buyer and seller are informed parties. To be an informed party, most people turn to a licensed, certified, professional appraiser to provide them with the most accurate estimate of the true value of their property.

So what goes into a real estate appraisal? It all starts with the inspection. An appraiser's duty is to inspect the property being appraised to ascertain the true status of that property. The appraiser must actually see features, such as the number of bedrooms, bathrooms, the location, and so on, to ensure that they really exist and are in the condition a reasonable buyer would expect them to be. A typical real estate appraisal appointment will take approx 25 minutes, at the home. That includes both the interior and exterior inspection.
A sketch of the room layout is made and photos are taken of the home as well as any out buildings that may be on the property. Most importantly, the appraiser looks for any obvious features - or defects - that would affect the value of the house.

Once the site has been inspected, an appraiser uses two or three approaches to determining the value of real property: a cost approach, a sales comparison and, in the case of a rental property, an income approach.

For more details on when you might need an appraisal click here: Reasons to get an Appraisal

Cost Approach

What it would cost to replace the improvements, less physical deterioration and other factors, plus the land value. The appraiser uses information on local building costs, labor rates and other factors to determine how much it would cost to construct a property similar to the one being appraised. This value often sets the upper limit on what a property would sell for. Why would you pay more for an existing property if you could spend less and build a brand new home instead? While there may be mitigating factors, such as location and amenities, these are usually not reflected in the cost approach.

Sales Comparison

Making a comparison to other similar, nearby properties which have recently sold. The Sales Comparison Approach is normally the most accurate and best indicator of value for a residential property. Appraisers analyze neighborhoods, and the value of certain features to the residents of that area. Consideration is given to traffic patterns, the school zones, the throughways and they use this information to determine which attributes of a property will make a difference in the value. Then, the appraiser researches recent sales in the vicinity and finds properties which are ''comparable'' to the subject being appraised. The sales prices of these properties are used as a basis to begin the sales comparison approach. Using knowledge of the value of certain items such as square footage, extra bathrooms, hardwood floors, fireplaces or view lots, the appraiser adjusts the comparable properties to more accurately portray the subject property.

Income Approach

In the case of income producing properties - rental houses for example - the appraiser may use a third approach to valuing the property. In this case, the amount of income the property produces is used to arrive at the current value of those revenues over the foreseeable future.

Reconciliation

Combining information from all approaches, the appraiser is then ready to stipulate an estimated market value for the subject property. It is important to note that while this amount is probably the best indication of what a property is worth, it may not be the final sales price. There are always mitigating factors such as seller motivation, urgency or ''bidding wars'' that may adjust the final price up or down. But the appraised value is often used as a guideline for lenders who don't want to loan a buyer more money that the property is actually worth. The bottom line is: an appraiser will help you get the most accurate property value, so you can make the most informed real estate decisions.

Some Myths and Realities About Real Estate Appraisals and Appraisers

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: Who Actually Owns the Appraisal Report? In most real estate transactions, the appraisal is ordered by the lender. While the home 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 home buyer is entitled to a copy of the report - it's usually included with all of the other closing documents - but is not entitled to use the report for any other purpose without permission from the lender. Under the Equal Credit Opportunity Act, consumers must be given a copy of the appraisal report, upon written request. The exception to this rule is when a home owner engages an appraiser directly. In these cases, the appraiser may stipulate how the appraisal can be used; for PMI removal, or estate planning or tax challenges, for example. If not stipulated otherwise, the home owner can use the appraisal for any purpose.

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: 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.

What is USPAP?

USPAP may be considered the Bible of appraisal practice. USPAP is the Uniform Standards of Professional Appraisal Practice. USPAP is published and maintained by the Appraisal Standards Board (ASB) of the Appraisal Foundation, a non-governmental entity charged by Congress with promulgating appraisal standards.

Every appraiser is charged with knowing and following USPAP, usually by operation of state law, and must complete Continuing Education periodically to relearn the basics and become familiar with new Advisory Opinions and annual changes to USPAP.

What does the appraisal report contain?

Each report must reflect a credible estimate of value and must identify the following:

• The client and other intended users.
• The intended use of the report.
• The purpose of the assignment.
• Scope of Work
• The type of value reported and the definition of the value reported.
• The effective date of the appraiser's opinions and conclusions.

Relevant property characteristics, including location attributes, physical attributes, legal attributes, economic attributes, the real property interest valued, and Non real estate items included in the appraisal, such as personal property, including trade fixtures and intangible items. All known: easements, restrictions, encumbrances, leases, reservations, covenants, contracts, declarations, special assessments, ordinances, and other items of a similar nature.

After completing the report, what assurance is there that the value indicated is valid?

In communicating an appraisal report, each appraiser must ensure the following:

• That the information analysis utilized in the appraisal was appropriate.
• That significant errors of omission or commission were not committed individually or collectively.
• That appraisal services were not rendered in a careless or negligent manner.

That a credible, supportable appraisal report was communicated.

Most states require that real estate appraisers are state licensed or certified. The state licensed or certified appraiser is trained to render an unbiased opinion based upon extensive education and experience requirements. To become licensed or certified, appraisers must fulfill rigorous education and experience requirements. In addition, appraisers must abide by a strict industry code of ethics and comply with national standards of practice for real estate appraisal. The rules for developing an appraisal and reporting its results are insured by enforcement of the Uniform Standards of Professional Appraisal Practice (USPAP).

Where does an appraiser get the information used to estimate value?

Gathering data is one of the primary roles of an appraiser. Data can be divided into Specific and General. Specific data is gathered from the home itself. Location, condition, amenities, size and other specific data are gathered by the appraiser during an inspection.

General data is gathered from a number of sources. Local Multiple Listing Services (MLS) provide data on recently sold homes that might be used as comparables. Tax records and other public documents verify actual sales prices in a market. Flood zone data is gathered from FEMA.  And most importantly, the appraiser gathers general data from his or her past experience in creating appraisals for other properties in the same market.

How do I get ready for the appraiser?

The following Items, if available, will help your appraiser to provide a more accurate appraisal in a shorter period of time:

• A survey of the house and property.
• A deed or title report showing the legal description.
• A recent tax bill.
• A list of personal property to be sold with the house if applicable.
• A copy of the original plans.

What is ''Market Value?''

Market value or fair market value is the most probable price that a property should bring (will sell for) 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 definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are typically motivated; (2) both parties are well informed or well advised; (3) a reasonable time is allowed for exposure to the open market; (4) payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and (5) 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.

Which home renovations add the most to the price?

The answer to this is different depending upon the location of the home. Different markets value amenities differently. Adding a central air conditioner in Houston, Texas may add significant value, while putting one in a home located in Buffalo, New York might not have much impact.

As a rule, the most value returned from renovating a home comes in the kitchen. According to one national survey, kitchen remodels returned an average of 88% of the investment. In other words, a $10,000 kitchen remodeling project would add approximately $8,800 to the value of the home. Bathrooms were second, returning 85%.