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Frequently Asked Questions About Home Loans |
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What is an appraisal?
An appraisal is a thought process leading to an opinion of value.
The opinion of value is typically derived from using three separate
“approaches to value”. First is the Cost Approach which is the
actual cost to replace the improvements, less physical deterioration
and other internal/external factors, added to the land value. Second
is the Direct Sales Comparison Approach which involves comparing the
subject to similar nearby properties that have generally sold within
the past six months. The Sales Comparison Approach is generally
accepted as the most accurate and best indicator of value for
residential properties. The third approach is the Income Approach
which includes rental and income analysis. This approach is used for
income producing properties.
Why would an appraisal be needed?
There are a variety of reasons to obtain an appraisal, most commonly
for real estate and mortgage transactions. Other reasons to obtain
an appraisal include:
- To obtain a loan/mortgage.
- To establish replacement cost for insuarnace purposes.
- To settle an estate/probate purposes.
- To remove PMI.
- For listing/selling purposes.
- As a negotiating tool for real estate transactions.
- For a variety of tax situations.
- For divorce settlement. |
What does an appraiser do?
An appraiser makes an unbiased opinion of market value of a given
property based on professional education and experience. An
appraisal report is generated from the appraiser’s research, and
data collected and analyzed.
Why do I need a professional appraisal?
An appraisal is needed to establish the value of a property for a
real estate transaction. In most cases, a lending decision is based
on an appraisers opinion of value and a licensed/certified appraiser
is required to prepare an appraisal report. Appraisers are familiar
with current real estate market conditions and trends, and are also
familiar with lender requirements and guidelines. An appraisal can
also be used to determine fair market value for buying or selling a
home, as well as in an estate or divorce settlement. A home is often
the largest asset someone owns, and a professional appraisal means
knowing the true value for making the right financial decisions.
What is PMI and how can I remove it?
Private Mortgage Insurance, PMI for short, is insurance that
protects the lender on homes purchased with a down payment of less
than 20 percent. In most cases PMI can be removed when the equity in
a home reaches 20 percent. Most lenders have their own in-house
requirements that must be met before PMI can be removed. Check with
your lender to find out their guidelines for PMI removal.
view additional information
Where does the appraiser obtain information used in the
appraisal?
One of the primary roles of the appraiser is gather data pertinent
to the appraisal assignment. Specific data is obtained from the home
itself and includes location, condition, size, amenities and other
information when inspection of the home is performed. General data
is gathered from outside sources such as assessor records, Multiple
Listing Service, tax records and flood data services to name a few.
In addition, the appraiser also uses data from past experience and
office records. Once all the data is collected, the appraiser
analyzes and generates an appraisal report based on the compilation
of the information.
What does the appraiser do during an inspection?
Once the appraiser receives an Engagement Letter for an appraisal
assignment, a home inspection is scheduled for the appraiser to see
the property. Typically, the appraiser will measure the home, take
photos of the home, determine rooms layout, confirm the condition of
the home and inspect for anything that has a positive of negative
influence on the property, both on the interior and the exterior.
The best thing a homeowner can do to help is to provide easy access
to all areas of the home and provide a list of improvements that may
or may not be visible to the appraisers eye.
Who do appraisers typically work for?
In most cases, the appraiser is employed by lenders to estimate the
value of real estate which involves a loan transaction. Other
appraiser clients include attorneys, investors and homeowners.
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