What is an appraisal?
An appraisal is a thought process leading to an opinion of value. This
opinion, is derived through a formal process that uses the three ''approaches
to value''. These approached are:
Cost Approach - Determined by using the cost to replace the improvements,
less physical deterioration and other factors, plus the land value.
Sales Comparison Approach - This approach involves making a comparison
to other similar, proximate properties which have recently sold. The sales
comparison approach is normally the most accurate and best indicator of
value for a residential property and thus the most commonly used.
Income Approach - This approach is utilized when determining value
of an income producing property..
Why do you need a professional appraisal?
There are many reasons to obtain an appraisal with the most common reason
is to obtain a bank loan. When property is purchased with a bank loan
or mortgage, the bank will require an appraisal. When selling your home,
an appraisal can determine the most appropriate listing price. When buying
a home, it provides a professional opinion of the properties market value.
If you're engaged in an estate settlement or divorce, it ensures that
property is divided fairly. A home is often the single largest financial
asset anyone will own. Knowing its true value ensures that you make the
right financial decisions.
What is market
value?
Market value or, 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.
What is the difference between an appraisal and a home inspection?
An appraiser provides a professional, unbiased opinion of market value
to be used in making real estate decisions. Appraisers present their formal
analysis in appraisal reports.
An inspection is a third-party evaluation of the accessible structure
and mechanical systems of a house, from the roof to the foundation. The
standard home inspector's report will include an evaluation of the condition
of the home's heating system, central air conditioning system (temperature
permitting), interior plumbing and electrical systems; the roof, attic,
and visible insulation; walls, ceilings, floors, windows and doors; the
foundation, basement, and visible structure.
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 either directly or 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. The home buyer can only obtain a copy of the appraisal through
there lender not directly from the appraiser.
What exactly is PMI and how can you get rid of it?
PMI stands for Private Mortgage Insurance. It insures a lender against
loss on homes purchased with a down-payment of less than 20%. Once your
remaining loan balance reaches 80% of your homes current appraised value
you can eliminate the PMI which can vary depending on the amount of the
loan.
PMI Removal
Private Mortgage Insurance or PMI is the supplemental insurance that many
lenders ask home buyers to purchase when the amount being loaned is more
than 80% of the value of the home. Very often, this additional payment
is folded into the monthly mortgage payment and is quickly forgotten.
This is unfortunate because PMI becomes unnecessary when the remaining
balance of the loan - whether through market appreciation or principal
paydown - dips below this 80% level. In fact, the United States Congress
passed a law in 1998 (the Homeowners Protection Act of 1998) that requires
lenders to remove the PMI payments when the loan-to-value ratio conditions
have been met.
Pre-Listing Decisions
Before someone decides to sell a home weather utilizing a Realtor or conducting
a private sale (For Sale By Owner), there are several decisions to be
made. First t: ''How much should it sell for?'' But there are other important
questions to ask: For example would it make financial sense to perform
some upgrades to the home prior to placing it on the market. Certain upgrades
can increase the sales price while others would not influence the sales
price equal to or greater then cost of performing the upgrade. An appraisal
can be beneficial in such circumstances.
Estate Planning
or Divorce
Dividing assets during a divorce or the passing of a family member. In
this situation it is important to have a good understanding of the value
of the assets in question. Normally a home is the greatest asset in question,
with the constant fluctuation of real estate prices an appraisal may be
the only way to determine the true value of this asset.
Cancellation of Private Mortgage Insurance: Federal Law May Save You Hundreds of Dollars Each Year
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