WHEN DO YOU NEED AN APPRAISAL

Every year, countless people throughout the United States buy, sell or refinance their homes or other real estate. Most of these transactions involve a real estate appraisal. For the modern lender, it has become an understood and accepted part of any real estate transaction. As such, it is almost always a requirement of the loan process. For a property owner, the appraisal can fill an information vacuum and leads to a better understanding of the property being appraised. Both the lender and the property owner have learned to seek the assurance that a professionally performed appraisal can bring to the table. 

The task of valuing real property falls to a body of professionals who maintain access to large databases of property transactions, who review and assess demographic and neighborhood trends, and who are trained to analyze this data in such a way that a valid opinion of market value can be developed. An objective analysis of the property, well supported by market facts and trends, is the goal. In fact, appraisals are far less subjective than the public often perceives and much time and back-ground effort can be expended creating the final report.

The "principle of change" is an economic concept familiar to all real estate professionals. Succinctly put, it states that real property is subject to constant forces of change. This leads to a potential for change in a property's market value. Markets may be static one year, rising or falling the next. It is this very principle that makes the development of an accurate appraisal so challenging and important.

Obtaining a high-quality appraisal is important. Many are surprised to learn that not all appraisers have the same qualifications. Does the appraiser only meet the minimum qualifications necessary to work in a given state. How long has the appraiser been in business? Is the appraiser affiliated with any national professional groups? Does the appraiser have qualifications that will foster sober, independent, and mature judgement?

Appraisals for loan purposes are well known. However, there are other times when the services of a certified real estate professional might be helpful?

PMI Removal

Private Mortgage Insurance or 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 or both - dips below this 80% level. In fact, the United States Congress passed a law in 1998 (the Homeowners Protection Act of 1998) that requires lenders to remove the PMI payments when the loan-to-value ratio conditions have been met. Removing the PMI insurance cost can save you money.

Most lenders will require concrete evidence that the 80% threshold has been met. The appraisal process is the same as for a loan ie. market value. The cost-to-benefits ratio over years of savings can be in your favor. In some cases, the costs of the appraisal service can be recovered in a matter of months of not paying the PMI.

Pre-Sale Decisions

Before someone decides to sell a home, there are a number of key decisions to be made. First and foremost is: ''How much should it sell for?'' A good appraisal can help in the final decision of how much to ask and how one should negotiate. Most Realtors will provide a free pricing service based on sales data and it may be difficult to justify the expense of a pre-appraisal. An appraisal in this instance is not required; but, it may be desired. Many factors come into play. For example: If the market has been subject to erratic change or if the property is somewhat difficult to value, an appraisal should be considered. If there has been a zoning or use change, an appraisal should be considered. If the propoerty can be further subdivided or has excess land, an appraisal should be considered. There is nothing sadder than the person who sells a property far, far below its actual market value (and it does happen). It is worth noting that the appraiser is unbiased in the valuation and has no vested interest in what amount the property sells for. Accuracy is the goal. While the vast majority of Realtors are strictly conscientious and honest, the appraiser's fee is always based on time and effort, not a percentage of the sales price. As opposed to a CMA, the appraisal carries the weight of the appraiser's expertise and skill in performing them on a regular basis. In short, seeking a professional appraisal for pre-sale is not always needed, but can apply in a surprising number of situations. 

Cost/Benefit Analysis:

On some occasions, there may be other important questions the owner of property may ask as well. Important considerations related to remodeling or supplemntal improvements such as a swimming pool come to mind.  ''Should I put in that third bathroom?'' ''Should I pursue a kitchen remodel?'' Many things which we do to our houses have an effect on their value. Unfortunately, not all of them have an equal effect on the bootom line. In the cases of some projects, while improving the appeal of the home, they may not add nearly enough to the value to justify the expense. The appraiser can be called to make this analysis in the form of a comparison.

Property Tax Challenges

Sometimes the tax assessor seems to come in at the high end of the value scale. Challenging the tax assessment can bring relief if it is justified. In this process, it is unwise to go into these challenges unarmed. Your experience with the tax officials will only be positive if you supply them with something concrete. A real estate appraisal can be a help in these situations. Remember though, it may not be economical to commission a full appraisal to lop a few hundred dollars off your tax bill. If there is a large discrepancy, an appraisal can carry a lot of weight when you appear before an appeals board.

Estate Planning

The loss of a loved one is a difficult time in life. Sadly, these events are often complicated by difficult decisions regarding the disposition of an estate. 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 sizable share of the total estate value. Here too, an appraiser can help. In may cases, a basis in the property needs to be established as of a certain relevant date. Beyond the acconting end of it, the next step in disposing of property in an estate is to understand its actual market value. In many cases it is to be sold and should be appraised.