Most professions have myths that could tarnish an individuals reputation. I will attempt to highlight ten common misconceptions regarding residential valuations.
Myth: My assessment should always equate to the market value.
Truth: Most provinces strive to support this train of thought however in realty this is generally never the case. For example, if the homeowner has completed recent renovations that the assessor may not be aware of, the assessed value may not reflect the overall condition of the property. On the other extreme, if the property has not seen modernization or typical upkeep- which is identified as differed maintenance, all of which could create an over assessed value.
Myth: The appraised value of a property will vary, depending upon whether the appraisal is conducted for the buyer or the seller.
Reality: If the appraiser has a vested interest in the property it is against professional standards to complete the valuation. In all assignments, the appraiser should render services with independence, objectivity and impartiality - no matter for whom the appraisal is conducted. There should be no variances for the final estimate of value, whether the report is being completed for the buying party, selling party or their financial institution.
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 party being under pressure to buy or sell. Replacement cost is the dollar amount required to reconstruct a property in-kind. Replacement cost can exceed the final estimate of market value if: the property overbuilt for the market, there extreme elements within a property that a typical purchaser would not typical pay for in the local market, various forms of depreciation and so forth.
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 but not limited to: its location, condition, size, proximity to facilities and recent sale prices for comparable properties. Unless the appraiser is dealing with a condominium development or a subdivision that offers identical style homes and identical finishes that have been completed by the same builder, a price per square foot may not represent true market norms.
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 evident both in appreciating market and depreciating markets.
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. The most comprehensive appraisal report requires an interior inspection of the property, which in turn identifies any common and unique variables within the dwelling and is a central characteristic when completing an appraisal report.
Myth: Because consumers pay for appraisals when applying for loans to purchase or refinance real estate, they own their appraisal.
Reality: The appraisal is, in fact, legally owned by the lender - unless the lender "releases its interest" in the document. However, consumers must be given a copy of the appraisal report, upon written request, under the discretion of the particular client and/or lender.
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: Appraisers are hired only to estimate real estate property values in property sales involving mortgage-lending transactions.
Reality: Depending upon their qualifications and designations, appraisers provide a wide spectrum of services, which includes: advice for estate planning, dispute resolution, corporate relocation's, before / after proposed renovations, zoning and tax assessment review and cost/benefit analysis. Other types of unique valuations include: bio hazard valuations, fire loss for insurance replacement purposes, retrospective appraisals and prospective appraisals.
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.
As you can appreciate, appraiser complete a wide variety of assignment for a great deal of clients. We hope you have learned at the very least, one new element within the appraisal process.
Thursday, August 20, 2009
Wednesday, July 22, 2009
10 Questions To Ask Your Appraiser
In most service based industries, the most frequently asked question is “how much does it cost for that product”? In many cases, the price is easily identifed however for real property appraisals, no two properties are alike and likewise there are no two appraisal reports the same. It human nature to ask this question however it truly depends on a vast number of circumstances. Prior to completing a quote, an astute appraiser will ask this prospective client a series of qualifying questions regarding the property. Please keep in mind that these are general questions but are not limited to:
Where is the property located?
What is the purpose of the appraisal report?
Who are the reports being addressed to / prepared for and who will be the client relying upon the final report?
How soon do you require the report?
All of these items are critical for quotation process. As a rule of thumb, the quicker you require the report, the higher the fee. Many companies implement a rush disbursement fee.
Now let’s change perspectives. If I was a client requiring a valuation, I would ask the appraiser the following questions:
Is the appraiser licensed and/or designated? If they are, it generally implies that this individual has gone though a grueling educational and recertification process.
How much experience does he/she have on appraising properties of similar quality within this region for the requested purpose? Experience matters. We all know people who are a jack of all trades but a master of none! Make sure the appraiser has ample amount of experience appraising the classification of property along with the purpose of the report.
Will the appraiser that you are contemplating on hiring be the same individual that will be completing the inspection and write up portions of the report? In many large firms, the senior appraiser essentially reviews and co-signs the reports as opposed to visually inspect the quality, condition and finish within the property.
How long will it take to receive my report? Do not be afraid to ask for a detailed description of the report. Many appraisers skimp out of key details. Ask if the quoted fee is inclusive of ALL disbursements.
All of these are important when hiring the best individual for your requested service.
Below is an article written by Jay MacDonald and was sourced from the link below. Although it is focused toward personal property appraisers, this article provides some great insight about the key questions to ask any service provider.
http://www.bankrate.com/brm/news/advice/20030801b1.asp
10 questions to ask a personal property appraiserBy Jay MacDonald • Bankrate.com
"Did you pick your appraiser based on a friend's recommendation? Maybe you thumbed through an antiques magazine and saw an ad that caught your eye. Or, most likely, you simply picked a person at random from the Yellow Pages.
Unlike real estate appraisers, most appraisers of personal property are not licensed. So how do you determine whether the person has the skill to give you a correct quote on your heirloom? The National Institute of Appraisers says these questions should help you determine whether the appraiser fits your needs:
1. What qualifies you to appraise my property? A pro will have formal education in appraisal theory, principles, procedures, ethics and law, as well as years of experience in his or her specialty.
2. Are you an accredited member of a professional society?
3. Have you been tested and passed a certification exam?
4. Do you take continuing education through your organization?
5. Do you buy or sell objects such as mine? If so, it could be a red flag for conflict of interest.
6. How much will your appraisal cost me? If the appraiser won't provide a written estimate, shop elsewhere.
7. How is your fee structured? It should be hourly or per piece, never a percentage of the appraisal.
8. What will I receive for my money? Ask for a detailed description of the appraisal report. Better yet, get copies of some recent appraisals.
9. How long will the appraisal take? Appraisals typically take anywhere from a week to a month.
10. Do you perform on-site instantaneous appraisals? Trick question. Run if they say yes."
Jay MacDonald is a contributing editor based in Mississippi.
--Posted: Aug. 1, 2003
Where is the property located?
What is the purpose of the appraisal report?
Who are the reports being addressed to / prepared for and who will be the client relying upon the final report?
How soon do you require the report?
All of these items are critical for quotation process. As a rule of thumb, the quicker you require the report, the higher the fee. Many companies implement a rush disbursement fee.
Now let’s change perspectives. If I was a client requiring a valuation, I would ask the appraiser the following questions:
Is the appraiser licensed and/or designated? If they are, it generally implies that this individual has gone though a grueling educational and recertification process.
How much experience does he/she have on appraising properties of similar quality within this region for the requested purpose? Experience matters. We all know people who are a jack of all trades but a master of none! Make sure the appraiser has ample amount of experience appraising the classification of property along with the purpose of the report.
Will the appraiser that you are contemplating on hiring be the same individual that will be completing the inspection and write up portions of the report? In many large firms, the senior appraiser essentially reviews and co-signs the reports as opposed to visually inspect the quality, condition and finish within the property.
How long will it take to receive my report? Do not be afraid to ask for a detailed description of the report. Many appraisers skimp out of key details. Ask if the quoted fee is inclusive of ALL disbursements.
All of these are important when hiring the best individual for your requested service.
Below is an article written by Jay MacDonald and was sourced from the link below. Although it is focused toward personal property appraisers, this article provides some great insight about the key questions to ask any service provider.
http://www.bankrate.com/brm/news/advice/20030801b1.asp
10 questions to ask a personal property appraiserBy Jay MacDonald • Bankrate.com
"Did you pick your appraiser based on a friend's recommendation? Maybe you thumbed through an antiques magazine and saw an ad that caught your eye. Or, most likely, you simply picked a person at random from the Yellow Pages.
Unlike real estate appraisers, most appraisers of personal property are not licensed. So how do you determine whether the person has the skill to give you a correct quote on your heirloom? The National Institute of Appraisers says these questions should help you determine whether the appraiser fits your needs:
1. What qualifies you to appraise my property? A pro will have formal education in appraisal theory, principles, procedures, ethics and law, as well as years of experience in his or her specialty.
2. Are you an accredited member of a professional society?
3. Have you been tested and passed a certification exam?
4. Do you take continuing education through your organization?
5. Do you buy or sell objects such as mine? If so, it could be a red flag for conflict of interest.
6. How much will your appraisal cost me? If the appraiser won't provide a written estimate, shop elsewhere.
7. How is your fee structured? It should be hourly or per piece, never a percentage of the appraisal.
8. What will I receive for my money? Ask for a detailed description of the appraisal report. Better yet, get copies of some recent appraisals.
9. How long will the appraisal take? Appraisals typically take anywhere from a week to a month.
10. Do you perform on-site instantaneous appraisals? Trick question. Run if they say yes."
Jay MacDonald is a contributing editor based in Mississippi.
--Posted: Aug. 1, 2003
Does Price = Value ?
A common misconception by purchasing parties is that the purchase price ALWAYS equates to the market value. If this were the case, there would never be a need to have an appraisal completed on your property.
Let’s first consider the definition of Market Value provided by the Appraisal Institute of Canada:
"The most probable price for which a property should bring in a competitive and open market as of the specified date under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus."
If a buyer is not cognizant of his/her local market and surrounding conditions, there is a likelihood that they might overpay for a specific property.
An important element within the real property appraisal process is the overall relationship between cost and value. In essence, the cost that a property may be acquired for may not be representative of the true market value or ongoing conditions within the specific market.
Motivation can be another variable within many real estate transactions. Items that can influence the final price include:
Is there is a relationship between the purchasing and selling party?
Is the seller forced to relocate and/or must sell their home quickly?
Is there undue stress or severe financial problems with the owner(s)?
Other factors that must be considered include: a purchaser might be willing to pay a premium for a property due to local amenities offered and/or being within a desired neighborhood.
In short, it is the role of the professional real estate appraiser to distinguish if the specific price that has been agreed upon is reflective within the local marketplace, keeping in mind the true definition of market value.
Let’s first consider the definition of Market Value provided by the Appraisal Institute of Canada:
"The most probable price for which a property should bring in a competitive and open market as of the specified date under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus."
If a buyer is not cognizant of his/her local market and surrounding conditions, there is a likelihood that they might overpay for a specific property.
An important element within the real property appraisal process is the overall relationship between cost and value. In essence, the cost that a property may be acquired for may not be representative of the true market value or ongoing conditions within the specific market.
Motivation can be another variable within many real estate transactions. Items that can influence the final price include:
Is there is a relationship between the purchasing and selling party?
Is the seller forced to relocate and/or must sell their home quickly?
Is there undue stress or severe financial problems with the owner(s)?
Other factors that must be considered include: a purchaser might be willing to pay a premium for a property due to local amenities offered and/or being within a desired neighborhood.
In short, it is the role of the professional real estate appraiser to distinguish if the specific price that has been agreed upon is reflective within the local marketplace, keeping in mind the true definition of market value.
What is an AVM?
Automated Valuation Models (AVM’s) have assisted lenders and other real estate professionals in recent times. We live in an “I Want It Now” era. An AVM would satisfy those folks who require immediate results but the conclusions can be very problematic. AVM’s are computer generated statistical data concerning values within a certain region. With a click of your computer, results are almost instantaneous however these estimates of value can vary greatly in overall quality, scope and detail.
On the surface, AVM’s may try to emulate an actual appraisal however it cannot replace the work completed by a human appraiser. AVM’s do not work well in those regions that there is a wide vary and mix of unique homes, areas that do not experience numerous sales and locations that lack property information.
Key drawbacks from AVM’s
In most cases, the appraiser is the eyes and ears for their respected client. A computer can’t determine if the property is actually physically present within its set of boundaries, overall style, condition and other social, economic and cultural variables that come to play within the appraisal process.
On the surface, AVM’s may try to emulate an actual appraisal however it cannot replace the work completed by a human appraiser. AVM’s do not work well in those regions that there is a wide vary and mix of unique homes, areas that do not experience numerous sales and locations that lack property information.
Key drawbacks from AVM’s
AVM’s are unable to quantify what specific features within a property may benefit or deter from the overall market value.
Many valuation models place heavy weight on the property assessment value, which may only be required every two to three years. This may not represent current market conditions either in a declining or developing market.
Another key variable is that the system cannot filter comparable properties as to why they may have sold. Numerous questions are difficult to answer, such as: what levels of motivation were at play? Was the property sold under duress? Did an individual overpay for a property just to reside in a specific neighborhood? Is the sale at arm’s length? Appraisers often identify these elements as an “arm’s length transaction”.
AVM’s are unable to accurately reflect current market conditions. A downturn in the economy could be overlooked and more importantly overvalued by an AVM!
The next time you require any valution advise, it is recommended that you hire a qualifed and independent appraiser. Rest assure that we are licensed and designated members that work exclusively in real estate valuations and know our markets extremely well.
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