Q: What is an appraisal?
A: Real estate appraisal, property valuation or land valuation is the practice of developing an opinion of the value of real property, usually its market value. The need for appraisals arises from the heterogeneous nature of property as an investment class: no two properties are identical, and all properties differ from each other in their location – which is the most important determinant of their value.
Q: What is Market Value in real estate?
A: Market Value in Real Estate: The most probable price (in terms of money) 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 and 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: the buyer and seller are typically motivated; both parties are well informed or well advised, and acting in what they consider their best interests; a reasonable time is allowed for exposure in the open market; payment is made in terms of cash in United States dollars or in terms of financial arrangements comparable thereto; and 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.
Q: Why do I need an appraisal?
A: We provide appraisals for numerous purposes, such as:
Mortgage Loan Origination (Home Loans)
Loan packages for; home purchases, home refinances, home equity loans, and home equity lines of credit will typically require an appraisal of your home or multi-family property. Mortgage loan appraisals represent the majority of residential appraisals conducted in the United Sates.
Pre-construction Appraisals (Construction Loans)
Want to build your dream home, rental property, or a 2-4 multi-family dwelling or just want to know if a proposed project is financially feasible. We prepare “hypothetical condition” appraisals which will establish a market value of your proposed improvements as if they were in already place. You and your lender can make informed decisions regarding construction loans and project feasibility.
Land Appraisals
We prepare valuations on vacant single family sites and vacant 2-4 family.
Pre-Listing and Pre-Purchase As a seller or a buyer you can make more informed decisions regarding the sale or purchase of a home by having an appraisal done prior to listing a property or prior making an offer to purchase a property.
PMI Removal
The PMI (private mortgage insurance) premium is a cost added to the monthly payment of many mortgage loans. You may be able to reduce your monthly payment by having the PMI premium removed. Removal requirements are based upon the amount of time the loan has been in place and the equity you have in your home. An appraisal of your property will establish your current equity position in your home or multi-family property. For your specific PMI removal requirements refer to your loan documents or contact your lender for instructions.
Property Tax Appeals
Property taxes and property tax appeal procedures are established by your property taxing district(s). Your property tax assessment may not be accurate. An appraisal of your home will help you make an informed determination regarding your property taxes and ultimately the appraisal may be utilized in the property tax appeal process. Contact your property taxing district(s) for requirements and instructions on your property tax appeal process.
Divorce Appraisals
Judges, attorneys, and arbitrators often require appraisals for divorce settlement purposes. Federal regulatory appraisal standards and guidelines require that the appraisal process be one of independence and in effect are third party opinions of value. Appraisals conducted by Ortiz Appraisal Group, llc are high quality appraisals which can be utilized in court proceedings and out of court divorce settlements.
Estate Tax Appraisals and/or Retrospective Valuations
There are many situations when you might need to know the value of a property on a specific date in the past as opposed to the date when the appraisal inspection was actually conducted. The IRS and accountants utilize appraisals for Estate Tax purposes, aka: Date of Death Appraisals, in order to establish a property’s value on a decedent’s date of death. Government agencies, business partners, and real estate portfolio managers also utilize retrospective appraisals for numerous reasons.
Foreclosure Appraisals, aka: REO Appraisals Lenders and secondary market participants such as; FNMA, FreddieMac, FHA, and VA often require an appraisal for foreclosure proceedings.
Q: How is an appraisal conducted?
A: The Inspection – There are two generally accepted forms of inspection.
A “Drive-By” inspection is simply that; the appraiser drives by the home which is the subject of the appraisal to confirm its existence. Any additional details of the home are typically acquired via county databases and/or property owners, sales agents, etc…
The most requested form of inspection is a complete visual inspection wherein the appraiser typically walks the site, physically measures the improvements, sometimes draws an interior layout and/or notes the number of bedrooms, bathrooms, and total room count. Additionally, the appraiser is noting the quality and condition of the improvements and looking for any obvious features or defects that would affect the value of the property.
Once the property has been inspected, an appraiser uses two or three approaches to determining the value of real property: the Cost Approach, the Sales Comparison Approach and, in the case of rental properties the Income Approach.
Cost Approach
Most appraisers use national cost handbooks which are then adjusted to local building cost trends. Cost figures are generated which reflect the estimated cost to construct a new property or to re-construct an existing property. If necessary, physical depreciation, functional obsolescence, and external obsolescence’s are calculated and factored into the cost equation.
Sales Comparison
The most widely accepted approach in residential market valuation is the Sales Comparison Approach wherein the appraiser searches the subject property’s market area for comparable properties which have recently sold; preferably comparable sales are limited to the previous six month period from the date of inspection of the subject property, however, in cases where comparable data is limited the time parameters may be expanded to a twelve month period. Appraisers should know the neighborhoods in which they work and understand the valuation nuances of each area. The sales prices of the comparable properties are used as a basis to begin the sales comparison approach. Comparable properties are then monetarily adjusted for varying features as they compare to the subject property. Comparable properties are often adjusted for variances in; location, views, design and appeal, quality of construction, room counts, gross livable area, garages and carports, porches/patios, fireplaces and any other value affecting features. After adjusting for the variances between the comparable properties and the subject property each comparable property has a resulting adjusted sales price. The comparable properties and their adjusted sales prices are then reconciled and a Sales Comparison Approach opinion of value for the subject property is arrived at from within the adjusted sales price range established by the comparable sales.
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.
The Final Reconciliation
Upon completion of the applicable and necessary approaches to valuing the subject property the appraiser is then ready to establish a final opinion of value. The approaches are weighted based upon their reliability as they pertain to the subject property. For example a new and/or very young home may have equal or close to equal weighting to the Sales Comparison Approach and the Cost Approach. However, in the case of an older home the cost approach may require excessive depreciation estimates which reduce its reliability and weighting in the Final Reconciliation process.
