Residential Real Estate Appraisals
PRA’s team of professionals provides dependable and accurate appraisals in Palm Beach, Martin, and St. Lucie counties.
In addition to mortgage appraisals, PRA’s appraisal services include:
- Removing PMI (Private Mortgage Insurance)
- Tax Assessments (reducing your property taxes)
- Setting a home’s sales price
- Legal matters such as divorce settlements
- Estate planning
- Employee relocations
A home purchase is the largest single investment most people will ever make. Whether it’s a primary residence, a second vacation home or an investment, the purchase of real property is a complex financial transaction that requires multiple parties to pull it all off.
Most of the people involved are very familiar. The Realtor is the most common face of the transaction. The mortgage company provides the financial capital necessary to fund the transaction. The title company ensures that all aspects of the transaction are completed and that a clear title passes from the seller to the buyer.
So who makes sure the value of the property is in line with the amount being paid? There are too many people exposed in the real estate process to let such a transaction proceed without ensuring that the value of the property is commensurate with the amount being paid.
This is where the appraisal comes in. An appraisal is an unbiased estimate of what a buyer might expect to pay – or a seller receives – for a parcel of real estate, where both buyer and seller are informed parties. To be an informed party, most people turn to a licensed, certified, professional appraiser to provide them with the most accurate estimate of the true value of their property.
So what goes into a real estate appraisal? It all starts with the inspection. An appraiser’s duty is to inspect the property being appraised to ascertain the true status of that property. He or she must actually see features, such as the number of bedrooms, bathrooms, the location and so on, to ensure that they really exist and are in the condition a reasonable buyer would expect them to be. The inspection often includes a sketch of the property, ensuring the proper square footage and conveying the layout of the property. Most importantly, the appraiser looks for any obvious features – or defects – that would affect the value of the house.
Once the site has been inspected, an appraiser uses two or three approaches to determine the value of real property: a cost approach, a sales comparison and, in the case of a rental property, an income approach.
The cost approach is the easiest to understand. The appraiser uses information on local building costs, labor rates and other factors to determine how much it would cost to construct a property similar to the one being appraised. This value often sets the upper limit on what a property would sell for. Why would you pay more for an existing property if you could spend less and build a brand new home instead? While there may be mitigating factors, such as location and amenities, these are usually not reflected in the cost approach.
Instead, appraisers rely on the sales comparison approach to value these types of items. Appraisers get to know the neighborhoods in which they work. They understand the value of certain features to the residents of that area. They know the traffic patterns, the school zones, the busy throughways, and they use this information to determine which attributes of a property will make a difference in the value. Then, the appraiser researches recent sales in the vicinity and finds properties which are ”comparable” to the subject being appraised. The sales prices of these properties are used as a basis to begin the sales comparison approach.
Using knowledge of the value of certain items such as square footage, extra bathrooms, hardwood floors, fireplaces or view lots (just to name a few), the appraiser adjusts the comparable properties to more accurately portray the subject property. For example, if the comparable property has a fireplace and the subject does not, the appraiser may deduct the value of a fireplace from the sales price of the comparable home. If the subject property has an extra half-bathroom and the comparable does not, the appraiser might add a certain amount to the comparable property.
In the case of income-producing properties – rental houses for example – the appraiser may use a third approach to valuing the property. In this case, the amount of income the property produces is used to arrive at the current value of those revenues over the foreseeable future.
Combining information from all approaches, the appraiser is then ready to stipulate an estimated market value for the subject property. It is important to note that while this amount is probably the best indication of what a property is worth, it may not be the final sales price. There are always mitigating factors such as seller motivation, urgency or ”bidding wars” that may adjust the final price up or down. But the appraised value is often used as a guideline for lenders who don’t want to loan a buyer more money than the property is actually worth. The bottom line is an appraiser will help you get the most accurate property value, so you can make the most informed real estate decisions.
Reasons for an Appraisal
Every year, countless people in the United States buy, sell or refinance their own slice of the American Dream. Most, if not all, of these transactions include a simple line item for an appraisal. It has become an understood and accepted part of a real estate transaction: “Let’s bring in the expert and make sure we’re not spending too much on this property.”
But is this the only reason to get an appraisal? Are there other times when the services of a certified, licensed, independent real estate professional might come in handy? You bet.
Purchase of a Home
One of the most important issues involved in purchasing a property is developing an opinion of what it’s worth so that you can make an informed offer to purchase. A professional appraisal report performed by a state-licensed appraiser can provide you with an objective, third-party opinion of a property’s current market value. And for the small price of this service, you can give yourself “peace of mind” prior to making an offer to purchase.
Refinance or Get a Home Equity Loan
If you need to consolidate bills, have a college tuition to pay or just want to tap into the equity of your home, you’ll need a new loan, which often requires a new appraisal of the property.
Private Mortgage Insurance (PMI) is the supplemental insurance that many lenders ask home buyers to purchase when the amount being loaned is more than 80% of the value of the home. Very often, this additional payment is folded into the monthly mortgage payment and is quickly forgotten. This is unfortunate because PMI becomes unnecessary when the remaining balance of the loan – whether through market appreciation or principal paydown – dips below this 80% level. In fact, the Homeowners Protection Act of 1998 requires lenders to remove the PMI payments when the loan-to-value ratio conditions have been met.
Many appraisers offer a specific service for homeowners who believe they have met the 80% loan-to-value metric. For a nominal fee, the appraiser can provide you with a statement regarding the home value. Some will even take the next step and help you file a challenge with your mortgage company. The costs of these services are very often recovered in just a few months of not paying the PMI.
A divorce can be a particularly traumatic experience for both parties and is often further complicated by the difficult decision of “Who gets the house?” In most divorce cases, the court won’t usually force the parties involved to buy out the other party’s interest, but it may order the sale of the home so each party gets an equal share of the equity. Regardless, it’s a good idea to order an appraisal so both parties are aware of the true market value.
If the parties want to sell the home, they’ll have a better idea of what price to set. On the flip side, if a buyout is the chosen option, both parties will feel like they’ve gotten a fair assessment.
The loss of a loved one is a difficult time in life. Settling an estate from a death, or probate, often requires an appraisal to establish Fair Market Value for the residential property involved. The ethics provision within the Uniform Standards of Professional Appraisal Practice (USPAP) binds us with confidentiality, ensuring the fullest degree of discretion.
Unlike many wealthy individuals, the majority of Americans do not have dedicated estate planners or executors to handle these issues. Also, in most cases, a home or other real property makes up a disproportionate share of the total estate value.
Here, too, an appraiser can help. Often the first step in fairly disposing of an estate is to understand its true value, which an appraiser can help determine. At this point, disrupting parties can more easily arrive at equitable arrangements. Everyone walks away knowing they’ve received a fair deal.
We understand the stress involved with an employee relocation. We take great care in establishing a convenient appointment time for the appraisal inspection. During our thorough inspection, we encourage relocating employees to provide input on the positive attributes of their property along with information about any recent sales or listings in their neighborhood that they want considered.
Home Improvements to Add Value
Before you decide to sell your home, there are several decisions to make. First and foremost: “How much should it sell for?” But don’t forget other equally important questions to ask yourself such as, “Would it be better to paint the entire house before we sell it?”, “Should I put in that third bathroom?” or “Should I complete my kitchen remodel?” Many home renovations affect market value. Unfortunately, not all of them have an equal effect. While a kitchen remodel may improve the appeal of a home, it may not add nearly enough to the value to justify the expense.
Selling a Home
Whether you choose to sell your home on your own or use a real estate agent, a professional appraisal can help you make a better-educated decision when determining your selling price.
Unlike a real estate agent, an appraiser has no vested interest in what amount the house sells for. It’s easy for them to step in and give you the information to help you make your decision. Appraiser fees are based on efforts to complete the report and not a percentage of the sales price. So seeking a professional appraisal can often help homeowners make the best decisions on investing in their homes and setting a fair sales price.