Residential
What is an appraisal?
Why do you need to go through my property?
How long does the inspection take?
If I get an appraisal, do I need a home inspection?
I paid for the appraisal, why can't you give me a copy?
I ordered an appraisal but my lender says the appraiser
must re-address the report to the bank, the appraiser says he can't
just change the addressee, why not?
Can you give me a letter of value?
The appraiser asked me what my purchase offer was at,
if I tell the appraiser, won't he/she just come in at that number plus
a little?
How can I tell if I have a "bad" appraisal?
I think I got a bad appraisal, what can I do about it?
An appraisal is just an opinion, right?
Why does the appraisal cost so much?
How should I go about hiring an appraiser?
Why do appraisals sometimes take so long to get?
Eminent Domain
You're only taking
land right? Why do you need to go through my house?
Will the assessor get a copy of the appraisal?
You're working for the government, so you'll come in
low right?
Should I get a lawyer?
What if I don't think its a fair offer?
An appraisal of real estate is an appraiser's opinion
of what the typical buyer for a given property is willing to pay, and
what the typical seller will accept. This "opinion" is not a
gut reaction or the result of years of experience. It is the result of
following a process of observing the subject property, researching the
market, and analyzing the information from the points of view of the
typical buyer and seller. It should also be understood that although an
appraisal typically arrives at a specific value, that value almost
always represents the center of a range of possible values. Studies
have shown that as much as 7.5% plus or minus of a given sale price is
unexplainable. This variance is due to the variable degree of
motivation of the buyer and seller as well as negotiating skills of
both parties. If you could sell the same property ten times on the same
day with different buyers and sellers, you'd probably get ten different
sale prices. However, those ten sale prices would typically fall in a
range. An appraisal that predicts the sale price within 5% (plus or
minus) of the actual sale price is generally considered accurate.
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In order to perform an appraisal, the appraiser must
be able to understand how the market will see your property. Therefore,
the appraiser needs to see at least as much of the property as the
typical prospective buyer would see during a showing. If you're buying
a home, would you make an offer without going through the property? If
the appraiser is going to predict how the typical buyer will react,
he/she must see everything. However, a real estate appraiser's
inspection should not be confused with a home inspection. Home
inspection is a separate field that focuses on the structural and
mechanical condition of the property.
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The time required for the inspection is a function
of the size and complexity of the property. The appraiser should see
the things any potential purchaser would see. It is the appraiser's job
to view the property from the point of view of a potential buyer. If
you were buying the property, how long would you spend looking it over?
An experienced appraiser does know how to move quickly through a
property, but every room and the basement should be observed. For most
homes, the interior inspection should last from 15 to 30 minutes.
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The appraiser's inspection should not be confused
with a home inspection. Home inspectors are licensed under a separate
category and will test systems like the furnace, dishwasher, water
pressure, etc, and will inspect wiring, plumbing, insulation, and
structural aspects of the property. Appraiser's are observing property
aspects such as number and size of rooms, decorating, interior and
exterior finish, property features, obvious deficiencies,
property location, etc. Again, the appraiser is observing the same
things a typical buyer would see during a showing. A home inspection is
usually a good idea (especially with older homes); it helps prevent bad
surprises.
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Because, paying for the appraisal does not entitle
you to a copy. The appraiser can reveal the appraisal only to his
client. According to current lending regulations, the lender must order
the appraisal. This is because it is the person (or organization) that orders
the appraisal, whom becomes the appraiser's client. Many lenders have
the borrower pay the appraiser directly; however, if the lender ordered
the appraisal, then the lender is the appraiser's client and is in
control of the appraisal information. An appraiser's work is highly
confidential and can only be revealed to the client. The client can
reveal the information to who ever they wish. In most cases, the lender
is required to make the appraisal available to the borrower.
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This is related to the above answer. The reason the
appraisal must be addressed to the lender is because if there is a
problem with the appraisal, the "client" (to whom the appraisal is
addressed) is the entity with the clear recourse against the appraiser.
In order to minimize risk, the lender must be the appraiser's "client"
in order to regain any losses resulting from a defective appraisal.
Sometimes borrowers may start with lender "A" and end up switching to
lender "B". In this case the appraiser ends up with a report in lender
"A"s files (the original client) with lender "B" asking for a copy that
is re-addressed to his/her bank (making lender "B" the new
client). Any time the appraiser produces a report on a given
property for different clients, he/she takes on liability for each
report. Because of this, each report is considered as a new assignment
and is billed accordingly. However, the scope of work for the second
(readdressed) report may be highly restricted (analyzing only those
things that have change since the original report), minimizing the time
and effort needed to produce the second report, resulting in a
significantly reduced fee.
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A "letter of value" is not an appraisal. In the
past, you may have been able to convince an appraiser to give you a one
or two page appraisal, typically referred to as a "letter of value".
Any Illinois Certified appraiser must adhere to the Uniform Standards
of Professional Appraisal Practice (USPAP). These regulations are clear
on what must be included in any appraisal analysis and the transmitted
report. This is typically more than can be squeezed into one or two
pages. However, these regulations allow for a wide variety of choices
in the "scope of work" the appraiser will perform. The appraiser can
perform an abbreviated report under the proper circumstances. The
bottom line is; the report must be detailed enough to be understood by
the client. If persons other than the client will be relying on the
report, it must contain enough information for them to understand the
appraiser's conclusions. Under no circumstances can the appraisal be so
brief that it could be misleading.
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An appraiser must report all sales within the past 3
years and or the current list price or offer to purchase price of the
subject property. This is common sense. It quickly identifies
"flipping". Although popularly used to describe buying a property,
fixing it up and selling it for a profit, flipping really refers to the
illegal scheme where multiple parties buy and sell the same properties
between themselves, elevating the sale price with each transaction. The
grossly inflated value is then used to acquire a mortgage, at which
point the conspirators disappear with the loan money, leaving the
lender with a property worth only a fraction of the money they loaned
on it. By reporting recent sales, the flipping pattern is revealed.
Knowing the recent or current purchase price of the property also helps
the appraiser with the market analysis. After all, if one of your
neighbor's home were the subject of the appraisal, wouldn't the
information about your purchase be important to that analysis? Then why
would it be less important to the analysis of your property? In fact, a
recent, arms length sale of the subject property is usually the best
comparable sale! The more information the appraiser has, the better the
analysis will be.
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A bad appraisal is one that is based on faulty
information or logic. It is not necessarily an appraisal whose
conclusion you disagree with. An appraisal is "bad" when it contains
significant factual errors or was incompetently performed intentionally
or through ignorance. In fact, you can have a "bad" appraisal
with a perfectly accurate conclusion. An appraisal is "bad" when it
fails to meet the Uniform Standards of Professional Appraisal Practice
(USPAP).
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If you've received a appraisal you believe is "bad":
If you're the client, start by contacting the appraiser and voicing
your concerns. Accidents happen! Mistakes get made! It's only a
problem when nothing is done about it. Obviously, differences of
opinion are a grey area. The appraiser will generally stick with what
he/she is comfortable with. After all, the appraiser is the one who is
taking on the liability for the appraisal. If you're not the client, go
through the client with the same questions. If there is no resolution,
you can contact the Illinois Department of Financial and Professional
Regulation (IDFPR) http://www.obre.state.il.us/CONSUMER/FORMS/AppraisalComplaint.pdf
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An appraisal is an opinion of value, but its not a
gut reaction, or based solely on experience with a given type of
property. A real estate appraisal is a process of observation and
analysis that leads to a final conclusion of value that is supported by
market data. In order to complete the process, the appraiser should be
making a through inspection of the property (the easy part of the job),
followed by gathering market information such as comparable land and
improved sales, comparable rental and expense information (when
appropriate), followed by reconciling the information with the
observations of the subject property and arriving at a value
conclusion. Then a report outlining the information must be written and
transmitted to the client.
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The cost of the appraisal is a function of different
factors. The use of the appraisal (lending, tax appeal, eminent domain,
etc), the type of property (commercial, residential, land, etc), the
report type (form or narrative), and the scope of work (how will the
property be analyzed and to what level of detail) all play into the
cost of the appraisal. This all takes time and knowledge/experience.
Yes, there is software that helps move the process along, but its the
appraiser's ability to identify the market for a given property, and
locate the appropriate market information for application to the
subject that you're paying for. Typically, those with more experience
with the appraisal process will produce superior results. As with
most everything, you tend to get what you pay for. Is it really wise to
select the lowest bidder when making decisions concerning tens or
hundreds of thousands of your dollars? Also, be skeptical of an
appraiser who tries to increase the fee after the accepting the job.
After inspecting the property (usually step #1 in the process) the
appraiser will know if there was a misunderstanding as to what the
property to be appraised consisted of. There may be a legitimate reason
to renegotiate the fee. But if the appraiser is well into the appraisal
process, its the appraiser's fault if he/she failed to bid the fee
appropriately. The appraiser may ask for an increased fee, but if you
don't agree, the appraiser should either walk away (no charge to you)
or finish the job as originally agreed to.
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Hiring an appraiser is much like hiring any other
professional. Ask questions like:
- How long has he/she been in the business?
- What is their primary type of work (residential, commercial,
etc)?
- Do they hold any professional designations?
- If so, what did they have to do to get their designation?
- What type of State Certification do they have (residential or
general)?
- Do they have experience with your type of property and assignment
type?
- How would they approach the assignment?
- Do they have a set of qualifications they can fax, e-mail, or
mail to you?
- How long will it take for the appraisal?
- How much will the appraisal cost?
And as with any purchase, shop around.
But please be aware that if you are an individual getting an
appraisal for financing, the lender MUST order the appraisal.
This is because lending regulations require the lender to be the
appraiser's client, and the client is defined as the party that orders
the appraisal. Also, for larger assignments, it is usually a good idea
to get a "letter of engagement". This is simply a letter from the
appraiser, outlining the assignment, cost and turn around time. The
letter is usually signed by both parties.
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There are two main reasons an appraisal may take
some time to complete. The obvious answer is that the appraiser is busy
with existing assignments. An ethical appraiser knows what their
workload is and should advise the client of potential delays due to
pre-existing commitments. Another source of delay is caused by various
information sources failing to respond quickly to questions from
appraiser. In many circumstances, the professional appraiser will
contact parties to comparable sales transactions to inquire about sales
terms, the condition of the property, etc. in order to fully understand
the circumstances surrounding the transaction. This level of detail is
often important and rarely available in the public record. Sometimes,
it takes days to get return phone calls from information sources. This
adds to the turn around time for the appraisal, but can be crucial to
the accuracy of the report.
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Under nearly all
circumstances where a government body is acquiring private property,
the governing policy will require that the part to be acquired is
valued as part of the whole property. There are various reasons for
this, but at the most practical level, it is usually best if the
appraiser starts by estimating the value of the whole property. It is
usually necessary to base compensation on the value of the part taken
(as it contributes to the whole property) and the impact of the taking
on the value of the remainder. If the property's value loss is greater
than the value of the part taken, then there is damage to the remainder
property. This potential damage to the remainder is usually a function
of the value of the remaining property. For example, losing half of the
front yard setback will generally make a residence a less desirable
place to live. However, when expressed in dollars, you need to know
what the value of the residence is before you can estimate the value
loss. A $65,000 residence will experience a lesser dollar value loss
than a $200,000 residence would from the same loss of setback.
You usually don't have to let the appraiser through your property, but
in nearly every instance, it is to your advantage to do so. If in
doubt, contact your attorney.
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Typically, No. In my 25+ years of experience with
condemning authorities, I have never seen an instance where a
condemning authority made their appraisals available to an assessing
office. However, be sure to make your assessor aware of any acquisition
on your property. It should result in a reduction of your
assessed value.
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Absolutely not!
Virtually all condemning authorities go out of their way to make sure
they do not influence the appraiser. Think about it. In most road
projects, the acquisition cost is usually a small part of the overall
project cost. Why risk delays, court costs, and the possibility of
overly generous jury awards, just to save a few bucks with a
conservative offer. Don't misunderstand me, being the subject of a land
acquisition doesn't mean you've hit the lotto either. What you will
find is that its not the dollars that matter to the appraiser, its the
process of arriving at the total compensation that the appraiser and
the condemning authority are focused on. If the policies and procedures
are followed properly, the dollars will take care of themselves.
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Should you get a
lawyer? If you feel uncomfortable with the acquisition process, by all
means, consult your attorney. My usual advice is to wait until you
receive an offer. If you feel its a fair offer, accept it (you won't
have to share it with your attorney). If you feel the offer isn't
adequate, consider bringing in your attorney. If you can't reach an
agreement with the condemning authority and you're heading to a quick
take or condemnation, you should be consulting an attorney unless you
know what you're doing.
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You course of action will depend on various
factors. In general, if you feel the offer is too low, try negotiating.
If that doesn't help, its probably time to get your attorney involved
and follow his/her advice. In almost all cases, there is usually plenty
of time to continue negotiations while preparing your case.
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