A Few Commonly Asked Questions
Of all the types of value that can be appraised, this is the type of value that is the major focus for most real property appraisals. There have been several definitions for this established by various organizations operating within the appraisal industry, but one of the most common, that is utilized in virtually all mortgage lending transactions, is the following:
Definition of Market Value
Market value is the most probable price that 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, 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:
- buyer and seller are typically motivated;
- both parties are well informed or well advised, and each acting in what he or she considers his/her own best interest;
- a reasonable time is allowed for exposure in the open market;
- payment is made in terms of cash in U.S. 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.
Source: B4-1.1-01, Definition of Market Value (04/15/2014) (fanniemae.com)
There are many reasons the expertise of an appraiser might be required. Most often people interact with an appraisal during their home-buying process, particularly during mortgage transactions. A few other reasons for getting an appraisal include:
- To refinance a home loan.
- To reduce your property taxes.
- To show the replacement cost of PMI.
- To challenge high property taxes.
- To settle an estate.
- To offer you a leg-up when purchasing real estate.
- To find an honest sales price when selling real estate.
- To protect your rights in a condemnation case.
- Because a government agency such as the IRS requires it.
- If you ever find yourself in a civil case.
No two appraisal reports are the same. The contents of a report can vary based on the client/intended user’s needs. For mortgage lending, the various financial institutions out there can have quite the lengthy list of requirements as they deal with billions of dollars per year in appraised values. Talk about an exercise in risk management! For the typical homeowner/Realtor®, their requirements may not be as extensive, and the appraisal report will be shorter, focusing more on what is relevant to their specific needs. However, all appraisal reports have a certain minimum set of development and reporting standards, established by the Uniform Standards of Professional Appraisal Practice (USPAP). Even a simple verbal appraisal over the phone still requires appraisers to comply with and perform everything listed in this 368 page document (2020-2021 Ed.)
Uniform Standards of Professional Appraisal Practice (USPAP) (appraisalfoundation.org)
Standards Rule 2 covers the minimum reporting requirements for the content of real property appraisals. First and foremost, each written or oral real property appraisal report must:
- clearly and accurately set forth the appraisal in a manner that will not be misleading;
- contain sufficient information to enable the Intended user(s) of the appraisal to understand the report properly; and
- clearly and accurately disclose all assumptions, extraordinary assumptions, hypothetical conditions, and limiting conditions used in the assignment.
When providing a written real property appraisal report, each report must be prepared under one of the following options, and prominently state which option is used: Appraisal Report or Restricted Appraisal Report. The report content and level of information varies between these two reporting options. Your appraiser will know, based on your intended use/user requirements, which option is best suited for your situation.
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.
The state of Texas requires that real estate appraisers be licensed or certified by the state to perform appraisals. The licensing requirements put forth by the state are extensive, and require the appraiser be trained to render an unbiased opinion of value by completing a years-long education and field-training experience curriculum under mentorship. To become licensed or certified, appraisers must fulfill these 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).”
Our work generally speaks for itself, however, if you have any concerns about the process or how your value was determined. Please reach out to our office and we’d be happy to discuss the details about your appraisal assignment with you.
Gathering reliable data is the foundation of a good appraisal report. The most common (and comprehensive) process for gathering relevant information about the subject property of an appraisal is through a personal on-site visit of the home by the appraiser. Specific data about the property, including location, size, quality, condition, room counts, amenities and various market-specific data points are gathered by the appraiser during their visit.
Once the appraiser has developed a good picture of the subject itself, the market data used to estimate value is gathered from a number of public and private sources. As Texas is a non-Disclosure state, the sales prices of homes in our area are not reported on public records. Appraisers rely on local real estate agents, as well as the local HAR.com Multiple Listing Service (MLS) to provide sales data on recently sold homes that might be used as comparable sales, and to analyze a wide range of data points to determine market trends relevant to the assignment. Tax records and other public documents can be used to verify the property characteristics of the comparable sales we receive. Flood zone data is gathered from FEMA data outlets, such as CoreLogic’s InterFlood mapping product. Most importantly, the appraiser gathers and retains their own local database and tools, developed from their years of local experience in performing appraisals for other properties in the same market areas.
The first step in most appraisals is the property site visit. During this process, the appraiser will come to your home, measure it, determine the layout of the rooms inside, confirm all aspects of the home’s general condition and quality, and may take several photos of your house for reference in the work file or report. The best thing you can do to help is make sure the appraiser has easy access to all areas of your home. Trim any bushes and move any items that would make it difficult to measure the structure. On the inside, make sure that the appraiser can easily access items like furnaces and water heaters.
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 list of any recent major structural or mechanical repairs, updates or remodeling
- A copy of the original plans, if available.
An appraisal report is the result of an agreement for services between appraisers and their clients. What can be done with the report, and who the appraiser can communicate with are established by these two parties.
In the majority of real estate transactions, the appraisal is ordered by the Lender. In this case, the Lender becomes the appraiser’s client, and the establishment of the report’s Intended Use and Users will be arranged at the time of assignment. The appraiser must take care to protect the confidential nature of this appraiser-client relationship. While it is common practice for the Lender to charge their borrowers an “Appraisal” fee as part of their closing costs, this is a separate agreement between Lender and Borrower, and does not infringe upon the Lender’s appraiser-client relationship.
However, a borrower is entitled to a copy of the report – it’s usually included with all of the other closing documents. The lender is required to disclose and provide this information to their borrowers as part of the lending process, to comply with the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act): Disclosure and Delivery Requirements for Copies of Appraisals and Other Written Valuations Under the Equal Credit Opportunity Act (Regulation B) | Consumer Financial Protection Bureau (consumerfinance.gov)
As a homeowner, if you find you are in need of an appraisal, the best option is to engage an appraiser directly. In these cases, the appraiser will work directly with you and establish how the appraisal can be used based on your intended use and the scope of work requirements, whether it be for PMI removal, estate planning or tax challenges, for example.
An appraiser is a valuation professional, who is expected to perform valuation services competently, and in a manner that is independent, impartial and objective. (USPAP, 2020-2021 ed.)
Regulations regarding licensing and certification of Real Estate Appraisers vary from state to state. Texas, our Lone Star State, has established the Texas Appraiser Licensing & Certification Board (TALCB) to safeguard consumers in matters of real property appraisal services. The TALCB provides education and licensing services, as well as regulation and enforcement of state and federal laws and requirements that govern real property appraisals.
The requirements to become an appraiser change over time (every 4 years in Texas), but in general, licensing and certification requires hundreds of hours of classes, coursework and tests, alongside thousands of hours of practical and field experience under an established industry professional as a supervisor/mentor. Once an appraiser is licensed, they are required to take continuing education courses throughout their career in order to maintain their license and stay abreast of industry changes as they occur.
There are various public and private institutions that employ professional appraisers to perform valuation services for them, from local banks/credit unions to the Federal government agencies themselves. However, during the traditional homebuying process, many appraisers work for their own independent firms, and are generally contracted by the banks as the local expert in estimating the value of the real estate involved in the loan transaction. Our appraisers also provide services in litigation cases, tax matters and investment decisions for homeowners, real estate agents, law firms, insurance companies, or any party needing to confirm the value of real property property.
If you are thinking about becoming a Certified or Licensed Residential Appraiser in Texas, the first step is to obtain an Appraiser Trainee Authorization.
Become an Appraiser Trainee | TALCB (texas.gov)
Through this designation and your training, you’ll learn about the role of the appraiser and work alongside a supervising appraiser. Your supervisor will teach you proper appraisal practices and approved techniques for gathering information about the property, analyzing relevant market data, and developing opinions of value.
Aegis Appraisals is a proud sponsor of appraiser trainees. Through our sponsorship program led by our most seasoned certified appraisers and our firm’s innovative technology platforms, we are helping train the next generation of appraisers in Texas. If you’re a trainee or newly licensed, please contact our office or submit an application to inquire about current availability.
For more information on obtaining your Appraisal License and education/experience requirements, please visit the Texas Appraiser Licensing & Certification Board website at: https://www.talcb.texas.gov/
The level of inspection performed by an appraiser during their site visit is limited to readily observable areas of the home and does not rise to the level of a full home inspection. This is done to gather an opinion of the property from a marketing perspective and is not technically exhaustive. Appraisers, as part of an appraisal, do not provide full property inspections and are not licensed as home inspectors.
A licensed third-party home inspector will inspect the complete structure of your property, from the top to the bottom. Commonly, a home inspection report will explain the amenities and the requirements of the house: air conditioning (weather permitting), electrical services, the condition of the heating system, the plumbing; then the structural capacity of the home such as the attic, accessible insulation, walls, floors, ceilings, windows, then the foundation, basement and visible structures.
For more information about the differences between appraisals and home inspections, we’ve presented a comparison of these professionals here:
Appraisals and Surveys and Home Inspections, Oh My! | Aegis Appraisals, Inc. (kinsta.cloud)
Frankly, the difference is night and day. A CMA report is, at its base, a statistical dataset that is dependent on ill-defined specifications and trends. Generally provided by a Real Estate Agent or Broker, the process behind developing a CMA is simplistic, and does not follow the comprehensive valuation process an Appraiser is trained to perform. It can be subject to significant inaccuracies, based on the level of experience of the person providing the CMA.
An Appraisal Report is the result of an established valuation process, performed by an Appraiser, and requires the use vetted and verifiable resources and data and the application of proper, recognized techniques and methods to accurately provide an estimate of value. During the course of an appraisal assignment, relevant factors like property condition/quality, size and features, as well as the neighborhood location and amenities are all verified to produce a credible opinion of value.
A CMA report can be a useful tool to generate a “ball park figure” when reviewing your market area’s recent sales activity, but when you need a defensible and careful analysis, an appraisal will give a more accurate and supported opinion of value.
The biggest difference between these two products is the person creating the report. A CMA can be created by anyone with the data, a real estate agent, broker, or homeowner, who may or may not have a true grasp of the market or proper valuation concepts. An appraisal is created by a licensed, certified professional who has made a career out of valuing real property. Further, the appraiser is an independent voice, with no vested interest in the value of your home, as opposed to a real estate agent, whose income is tied to the price your home sells for.
PMI stands for Private Mortgage Insurance. It insures a lender against the potential loss in case of default on home loans – generally those purchased with a down-payment of less than 20%. If you currently pay PMI premiums, once your equity standing in your home reaches 20% or more, you can usually eliminate the need for PMI.
Ask your Lender where you stand. You may be able to order your own appraisal for use in their PMI removal decision and start saving immediately. See if your value has increased since your home purchase with an appraisal from Aegis Appraisals today! Contact Us
The answer to this question is different depending upon the type and location of the home. Different markets value amenities differently. Adding a central HVAC system or pool 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 general observation, the most value returned from renovating a home comes from its primary living areas – the kitchen, living room and main bedroom and bathrooms. The main driver behind increases in value from remodeling projects stems from the current status of your home.
Was your home/kitchen recently constructed? Perhaps it’s already acceptable to the market in terms of size, features and materials and a remodel would not gain much ROI. Perhaps it’s been many years since you’ve given your older home a facelift. Depending on the current state of the market, larger renovation projects can see significant ROI from a whole-home remodel.
Be cautious when reading websites or articles on the internet advising typical ROI for home remodeling projects. The data behind these calculations is usually derived on a large scale nationally, sometimes from questionable sources, and has not been vetted by an appraiser for proper market valuation techniques and methods. If you’re considering a remodel project and want an estimate on your ROI for the project, reach out to one of our experts for an affordable Consultation Service that fits your needs. [Contact Us]
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