More than 400 years ago, Sir Francis Bacon wrote that “knowledge is power” and today that adage still rings true, especially in real estate! Any time you are buying or selling property, it makes good financial sense to get an appraisal of value and know the facts.While the most common reason to order an appraisal is to secure a mortgage loan, appraisals are useful in a variety of other situations, including (but not limited to):
Don’t trust your finances to guesswork! From Trulia to Zillow, and Redfin to Eppraisal, numerous websites have popped up on the internet that claim to “make it easy and fun” to assess your home’s value “in a matter of seconds.” Some banks and realty companies even offer home value estimators. However, these sites only offer estimations done by a computer. Computers do not account for all the details surrounding a specific property, such as upgrades, renovations or much-needed repairs; strength of the market where the home is located; landscaping and property enhancements; and numerous other factors a certified appraiser considers. Rarely do online home values match with appraised values, resulting in skewed information that is higher or lower than what the property is actually worth.
Always make sure that the appraiser you are using is state licensed or certified. A list of appraisers meeting Arizona state requirements is regularly updated and can be found at the Arizona Department of Financial Institutions. (https://boa.az.gov/directories/appraiser) To become licensed or certified, appraisers must fulfill rigorous education and training 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) written by the Appraisal Foundation. (www.appraisalfoundation.org)
Arizona requires appraisers to be state licensed or certified in order to provide appraisals to federally regulated lenders. In Arizona, appraisers must first have a college degree; this is usually in a related area such as real estate law, finance, mathematics, economics or computer science. They then must complete qualifying real property appraisal courses from a state-approved school and complete an appraisal apprenticeship under a qualified registered supervisor who meets Arizona statute requirements. Appraisers must meet the Uniform Standards of Professional Appraisal Practice (USPAP) and are required to pass a national examination. Education and experience must be completed and the application must be approved by the Arizona Board of Appraisal before the examination may be taken. In addition, the State of Arizona requires all appraisers to be fingerprinted and go through a criminal background check administered by the Arizona Department of Safety. To maintain certification, an Arizona appraiser must complete 28 hours of state-approved courses every two years. A certified appraiser is the highest level of authorization. Certified appraisers are allowed to appraise any residential property, in any price range, of any size and complexity.
Most appraisals begin with a home inspection and, understandably, that makes some people nervous. So first, stop and breathe! Appraisers are not looking to see whether your home passes the white glove test. Rather, they are looking at the overall structure and its features.
During a typical home inspection, the appraiser will measure the square footage of your home, determine the layout of the rooms, confirm all aspects of the home’s general condition, note any special amenities, and take numerous photos of both the inside and outside. The best thing you can do to is to make sure that the appraiser has easy access to your home’s interior and exterior and can move about easily. Move any items that would make it difficult to measure your home.
Before issuing a report, an appraiser may also ask for any surveys that have been conducted of the house and property, deeds or title reports showing the legal description, recent tax bills, a list of furniture or other personal property to be sold with the home, a copy of the original plans or a list of recent renovations or improvements. When these special requests are made, producing the documents quickly will speed up the appraisal process.
In Maricopa County, the best investments are in renovating or upgrading kitchens and bathrooms. Dollar for dollar, improvements made to these rooms yield the highest return on investment and attract the most attention from buyers. Other amenities – such as new paint and flooring, installation of solar panels, or adding a pool, fire pit, jacuzzi or gazebo – may also increase value and help a home sell quicker, but owners usually make only a small percentage of their money back from these improvements.
As stated above, appraisal reports are not public documents. They are owned by the people who order them and anyone they instruct to have copies. In the majority of real estate transactions, the appraisal is ordered by the lender. While the home buyer pays for the report as part of the loan process, the lender retains the right to use the report and any information it contains. The home buyer is entitled to a copy of the report – it is included with other closing documents – but is not entitled to use the report for any other purpose without permission from the lender. In other transactions, the appraisal report is ordered by an individual or business. In these cases, the client may use the appraisal for a variety of purposes – from settling a divorce to estate planning to investment purposes. The appraiser cannot disclose the report to any outside parties without permission from the client who ordered it.
An appraiser draws upon multiple sources of data to help in establishing value. Data is gathered from the home or property itself, including location, condition, amenities, lot size, home size and proximity to desirable schools and other public facilities. Data is gathered from local multiple listing services (MLS) that provide information on recently sold homes that might be used as comparable properties. Tax records and other public documents are used to verify actual sales prices in a market. Government documents may be accessed to gather information about flood zones, for example. Engineering reports may be used to identify geological features on the property. Most importantly, the appraiser draws upon a wealth of data from his or her own personal experience and knowledge gleaned from writing appraisals for other properties in the same market.
PMI insures a lender against potential loss on homes purchased with a down payment of less than 20 percent. Once equity in a home reaches 20 percent, you can usually eliminate the need for PMI. To remove PMI on your loan, contact your mortgage company and ask what would be needed to satisfy its requirements. Every mortgage company is different so it is best to get information in writing. At this point, you can have your home appraised to determine if you have enough equity to quit paying for PMI and start saving money!
A CMA relies on overall market trends and delivers a “ball park figure” of worth. By comparison, an appraisal relies on specific, verifiable comparable sales and looks at a variety of factors such as condition, location, layout and construction costs. An appraisal delivers a defensible and carefully documented opinion of value. In addition, a CMA is often generated by a realtor who may or may not have a realistic grasp of the market or valuation concepts. The appraisal is created by a licensed professional appraiser who has made a career out of valuing properties. Furthermore, the appraiser is an independent voice, with no vested interest in the value of a property. A realtor’s income is tied to the perceived value of the home he or she is evaluating and helping to sell.
While both the appraiser and home inspector visually inspect a home to look for apparent or observable deficiencies and signs of neglect that could affect value, an appraiser does not test mechanical systems and major appliances. The appraiser’s job is to formulate an opinion of the property's value. In the case of purchasing of a home and obtaining a loan, an appraisal protects the lender from paying more than the home is worth. A home inspector’s job is to protect the prospective buyer from purchasing a home with structural defects and other major problems, so that there are no hidden costly surprises. A home inspector’s report will usually include an evaluation of the home’s heating, cooling, electrical and plumbing systems; roof, attic, walls, ceilings, floors, windows, doors, foundation, basement, fireplace and other structures; and oven, stove, refrigerator, microwave, washing machine, dryer and other appliances. A home inspector determines if the home needs repairs and if there are any health or safety concerns.
Our certified appraisers bring over a decade of knowledge, experience, reliability and trust to every transaction. In doing so, we help clients make sound decisions with regard to real property. We stand 100 percent behind the appraisals we write, and – when required – will go to court to defend our estimations. We also work diligently to meet clients’ needs and deadlines. Thank you for considering our firm!