John Henke, SRA has answers to "Frequently Asked Questions"
What is an appraisal?
What is an appraisal?(List of questions) The appraisal process is an estimation that leads to an opinion of value. This opinion or estimate is concluded through the use of a formal process that commonly uses three "common approaches to value". One of the methods in use is the Cost Approach, which evaluates what it would cost to replace the improvements to the house, minus age and physical deterioration, adding the land value. The Sales Comparison Approach deals with searching for comparable properties in close proximity and figuring out the value based on comparing those homes to the property being investigated. Being the most popular approach, the Sales Comparison Approach is generally the most precise and best indicator of market value for a property. The Income Approach is mainly used for finding the market value of income-producing properties based on what an investor would pay based on the amount of capital a property produce.
What does an appraiser do?(List of questions) An appraiser forumlates a fair and credible assessment of market value, often in the context of a real estate purchase. Appraisers demonstrate their professional investigation in appraisal reports.
Why would someone request your services?(List of questions) There are a lot of reasons to order an appraisal with the most common reason being real estate and mortgage transactions. Other reasons for ordering an appraisal include:
What is the difference between an appraisal and a home inspection? (List of questions)The appraiser is not a home inspector nor does he/she do a full home inspection. The point of a home inspection is to investigate the structure of the house from bottom to rooftop. Generally, a home inspection report will discuss the amenities and the requirements of the property: 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, exposed insulation, walls, floors, ceilings, windows, then the foundation, basement and visible structures.
What is the difference between an appraisal and a comparative market analysis (CMA)?(List of questions) Simply put, it's like comparing sugar and saccharin. The CMA depends on vague local market trends. Appraisals use similar sales which are verifiable resources. Location and building prices are also a priority in an appraisal. All a CMA does is generate a "ball park figure." An appraisal delivers a defensible and carefully documented opinion of value.
Who's creating the report is hands down the biggest difference between a CMA and an appraisal. Real estate agents produce CMA's, and they don't always know the whole market or have specific competence when it comes to home valuation. A certified, Texas licensed professional who has formed their livelihood on valuing properties in and around Collin County is behind the appraisal. Likewise, the agent has a vested interest in the property's selling price whereas the appraiser is bound by a code of ethics to accept a previously agreed upon sum for assignments, regardless of their value conclusion.
What's in an appraisal report? (List of questions)The main purpose of an appraisal document is to let the reader know the value of the real estate in question, and depending on the scope of the report, one will customarily see the following:
After completing the report, how can I have certainty that the final number is trustworthy?(List of questions) In communicating an appraisal report, each appraiser must see to it that each of the items below are covered:
Who hires an appraiser?(List of questions) Mortgage lenders are an appraiser's typical customer, requesting their services to ensure real estate involved in a mortgage transaction is enough to cover a loan balance in the case of default. Attorneys and CPAs also retain the services of appraisers for divorce and estate settlements.
Where does John Henke, SRA get the data used to estimate values in Collin County or other areas?(List of questions) One of the primary activities of an appraiser is to assimilate data. Data can be categorized as either Specific or General. Specific data is from the property itself; Location, condition, amenities, size and other specific data are documented by the appraiser during an inspection.
General data is received from a number of places. Local Multiple Listing Services (MLS) have data on recently sold homes that might be used as comparables. Tax records and other public documents verify actual sales prices in a market. Appraisers often have to report when a property lies in a flood zone, and that information is retrieved from a FEMA data outlet such as a la mode's InterFlood service.
And last but not least, the appraiser gathers general data from his or her collective knowledge gained from doing assignments for other properties in the same market.
Why should I hire a licensed appraiser?(List of questions) Any time the value of your home or other real property is being used to make a significant financial decision, an appraisal helps. For those selling a home, you'll want to determine a price that gets you the most profit but also ensures you don't have to wait too long for a buyer to show up; an appraisal can help with that. When buying, you can avoid overpaying by getting an independent appraisal. For those settling an estate or divorce, an appraisal from John Henke, SRA is the best documentation to ensure assets are split up evenly. A home is often the single, largest financial asset anybody owns. Knowing its true value means you can make the right financial decisions.
My mortgage statement has an item on it for PMI? Can I get rid of that?(List of questions) PMI is short for for Private Mortgage Insurance. It protects the lender in the event a borrower defaults on the loan and the value of the property is lower than the loan balance. You can have your PMI dropped once you've achieved 20% equity in your home through appreciation and principal payments.
Does the appraiser need anything from the homeowner in advance?(List of questions) The first step in most appraisals is the property inspection. During this process, the appraiser will come to your home and measure it, determine the layout of the rooms inside, confirm all aspects of the home's general condition, and take several photos of your house for inclusion in the report. Is there anything you can do to help? Yes there is! First, be sure the appraiser has easy access to the exterior of the house . Trim any shrubs and relocate any items that would get in our way while we measure the structure. Indoors, make sure we can get to items like furnaces and water heaters.
You can make our visit go faster and improve the quality of the appraisal report by having the following things on hand:
How does an appraiser define "Market Value"?(List of questions) In real estate appraising, Market Value is commonly defined as:
Who has rights to the appraisal report?(List of questions) For mortgage transactions, the lender requests the appraisal, either directly or through a third party. While the 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 buyer is entitled to a copy of the report - it's usually included with all the other closing documents - but is not entitled to use the report for any other purpose without permission from the lender.
It's different when it's the homeowner engaging the appraiser for things outside securing a mortgage. In these cases, the appraiser may define how the appraisal can be used; for PMI removal, or estate planning or tax challenges, for example. If not noted otherwise, the home owner can do whatever they want with the appraisal.
Are some home improvements more worthwhile than others?(List of questions) It really depends on the market. For example, while quality appliances are attractive, a $7000 built-in refrigerator won't pay off in a neighborhood of moderately priced homes
No matter where you go, however, renovating a kitchen is almost always a safe move. 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%. On the contrary, an improvement that may not increase your value would be painting just for the sake of redecorating.