Frequently Asked Questions

The process of performing an appraisal report consists of an estimation which forms an opinion of value. There are three "common approaches to value" which assists the appraiser arrive at this opinion or valuation. One of the three is the Cost Approach - which is how much capital would be required to replace the improvements, less physical deterioration and other factors, plus the land value. The Sales Comparison Approach involves searching for comparable houses in the vicinity and finding value based on comparing those houses to the property in question. Generally speaking, the Sales Comparison Approach is the most accurate indicator of market value of a home. 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 would bring in.

An appraiser generates a professional, unbiased opinion of market value, to be used in making real estate transactions. Appraisers document their investigation in appraisal reports.

There are a lot of reasons to purchase an appraisal with the usual reason being real estate and mortgage transactions. A few other reasons for ordering an appraisal report include:

• If you are applying for a loan.


• To reduce your property taxes.


• To show a homeowner has 30% equity and remove PMI.


• To fight improperly assessed property taxes.


• If you need to take care of an estate.


• To provide you an edge when purchasing real estate.


• To determine an honest property value when selling real estate.


• To protect your rights if your property is being taken by means of eminent domain in a condemnation case.


• Government agencies such as the IRS require an appraisal on every property.


• If you ever find yourself in a lawsuit.

The appraiser is not a home inspector and he or she does not do a complete home inspection. The purpose of a home inspection is to evaluate the structure of the house from foundation to top. For the most part, a home inspection report will discuss the amenities and the requirements of the property: air conditioning (weather permitting), electrical functions, 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.

Simply put, it's like comparing opera to country. What the CMA depends on are ill-defined trends. An appraisal relies on comparable sales that can be proven by public record. Location and building prices are also important in an appraisal. The CMA will provide a non-specific figure. An appraisal delivers a defensible and carefully documented opinion of value.

But the biggest difference is who's behind the report. Real estate agents, who may not have a complete understanding of valuation methods or the entire market, write CMA's. The appraisal is produce by a licensed, certified professional who makes a living out of valuing properties. Moreover, the appraiser is an independent voice, with no conditional interest in the property's value, unlike the agent, whose income is tied to the value of the home.

Each report must reflect a credible estimate of value and will document the following:

• The client and other intended users.


• How the appraisal is supposed to be used.


• The appraisal's purpose.


• Precisely what "value" attribute is being reported and what that value means.


• The effective date of the appraiser's opinions and conclusions.(Sometimes this is in the past or maybe the future for new construction!)


• Relevant property characteristics, including: location, physical characteristics, legal attributes, economic attributes, the property rights in question, and non-real estate items included in the appraisal, such as personal property, trade fixtures and even intangible factors.


• All known easements, restrictions, encumbrances, leases, reservations, covenants, contracts, declarations, special assessments, ordinances, and other items of a similar nature.


• Division of interest, such as fractional interest, physical segment and partial holding.


• The scope of work considered when completing the appraisal.

In the documentation of an appraisal, each appraiser must make sure of the following:

• That the information analysis contained in the appraisal was suitable.


• That significant errors of omission or commission were not committed individually or collectively.


• That appraisal services were done in a careful and conscientious fashion.


• that a credible, supportable appraisal report was imparted.

To become a state licensed appraiser, we must fulfill considerable education and experience requirements that enable us to produce an unbiased opinion. Plus, appraisers must abide by a meticulous industry code of ethics and observe national standards of practice for real estate appraisal. The guidelines for carrying out an appraisal and documenting its results are insured by enforcement of the Uniform Standards of Professional Appraisal Practice (USPAP).

Mortgage lenders are an appraiser's most likely client, using their services to ensure property involved in a mortgage transaction is adequate collateral for a loan. Appraisers also provide opinions in litigation cases, tax matters and investment decisions.

One of the most important tasks an appraiser performs is to assimilate data. Data can be split into Specific or General. Specific data is from the home itself; Location, condition, amenities, size and other specific data are documented by the appraiser during an inspection.

General data is gathered from a many sources. Local Multiple Listing Services (MLS) provide information 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 need 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 product. 

And last but not least, the appraiser assimilates general data from his or her past experience in creating appraisals for other houses in the same market.

If you're making any kind of financial decision and the value of your home is relevant, you'll want a full appraisal. When selling your home, an appraisal will help you determine the most appropriate price. When buying, be sure you're not overpaying by getting an independent appraisal. 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 anybody owns. Knowing its true value is essential to making the right financial decisions.

PMI is the common abbreviation for for Private Mortgage Insurance. It covers the lender in the event a borrower defaults on the loan and the market price of the house is less than the loan balance. Once you can prove the amount you owe on your home is less than 80% of the home's market value, you can make a case to your lender to drop the PMI.

Does your monthly house payment have a lineitem for PMI? Call RICHARD KANE & ASSOCIATES LTD. today at 413-525-6398 or send us an e-mail. Documentation of your home's present value could save you thousands.

The first step in most appraisals is the property inspection. What this entails is the appraiser, after setting up an appointment, personally going through the home - recording the layout of the rooms, taking photos and documenting the general status of its features. The best thing you can do to help is make sure the appraiser has easy access to the exterior of the house (gates aren't locked, etc). Trim any landscaping and move any items that would get in our way while we measure the structure. Indoors, make sure we can easily access appliances like furnaces and water heaters.

You can make the inspection go faster and improve the accuracy of the appraisal report by having the following things on hand:

• Written property agreements, such as a maintenance easement for a shared driveway.


• A list of any personal property that will be left behind and sold with the home, such as an oven, or a washer and dryer, if applicable.


• Home inspection reports, or other recent reports for termites, EIFS (synthetic stucco) wall systems, septic systems and wells.


• Brag sheet that lists major home improvements and upgrades, the date of their installation and their cost (for example, the addition of central air conditioning or roof repairs) and permit confirmation (if available).


• A list of "proposed" improvements if the property is to be appraised "as complete".

In real estate appraising, Market Value (as opposed to Fair Market Value) is commonly defined as:

"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."

For mortgage transactions, the lender requests the appraisal, either directly or through a third party. Even though it's the buyer that eventually pays for the report, the lender is the intended user. The buyer is entitled to a copy of the appraisal - 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 hiring the appraiser for things outside securing a mortgage. In these cases, the appraiser may define the purpose of the appraisal; for PMI removal, or estate planning or tax challenges, for example. If not stated otherwise, the home owner can use the appraisal for any purpose.

A home's location - what city it is in and even what part of that city - is key to this popular question. For example, adding a central air conditioner in to a home in the South may add significant value, while putting one in a home near the Pacific Northwest might not have much impact. 

As a rule, the best ROI from renovating a home comes in the kitchen. 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 weren't far behind, yielding 85%. On the contrary, something that may not add value would be painting just for the sake of redecorating.