Frequently Asked Questions
Objectives of Appraisals
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Appraisals are undertaken to accomplish several objectives:
- Develop an opinion of value of a property
- Estimate the cost of producing, acquiring, altering, or completing a property
- Estimate the monetary amount of damages to a property
- Forecast the monetary earning power of a property
In specific instances, the work may have additional objectives, such as:
the formulation of conclusions and recommendations or the presentations of alternatives (and their consequences) for the client’s actions.
Objective Character of the Results of an Appraisal Undertaking
The primary objective of a monetary appraisal is the development of a numerical result and must be developed objectively and without bias.
It is unrelated to the desires, wishes, or needs of the client who engages the appraiser to perform the work.
The appraiser’s primary obligation to his/her client is to reach complete, accurate, and credible conclusions and numerical results regardless of the client’s wishes or instructions in this regard.
The relationship between client and appraiser is not one of principal and agent. However, the appraiser’s obligation to his/her client goes somewhat beyond this primary obligation. These secondary obligations are set forth in the following sections.
1.21 The term appraisal practice, as defined by the American Society of Appraisers, applies to any of the following operations that are executed within a framework of general principles of technical procedure and personal conduct:
- Develop a credible opinion of the value of property on the basis of research and analysis according to current professional methodology
- Forecasting of the earning power of property
- Estimation of the cost of property
- Production of a new property
- Replacement of an existing property by purchase or production of an equivalent property
- Reproduction of an existing property by purchase or production of an identical property
- Determining non-monetary benefits or characteristics that contribute to value
- The rendering of judgments as to age, remaining life, condition, quality, or authenticity of physical property, amenities; an estimate of the amount of a natural resource, population increase, nature of market, rate of absorption, etc.
An appraisal is a thought process leading to a value conclusion.
The fundamental role of an appraiser is to provide a professional opinion, usually an estimate of market value, to be used in making real estate decisions.
There are many reasons to obtain an appraisal with the most common reason being real estate and mortgage transactions. Other reasons for ordering an appraisal include:
- To obtain a loan
- To lower your tax burden
- To establish the replacement cost of insurance
- To contest high property taxes
- To settle an estate
- To provide a negotiating tool when purchasing real estate
- To determine a reasonable price when selling real estate
- To protect your rights in a condemnation case
- Because a government agency such as the IRS requires it
- If you are involved in a lawsuit
The appraiser is not a home inspector nor does he/she do a complete home inspection.
An inspection is a third-party evaluation of the accessible structure and mechanical systems of a house, from the roof to the foundation.
The standard home inspector’s report will include an evaluation of the condition of the home’s heating system, central air conditioning system (temperature permitting), interior plumbing and electrical systems; the roof, attic, and visible insulation; walls, ceilings, floors, windows and doors; the foundation, basement, and visible structure.
Zillow is not considered a professional appraisal that would be honored by a lender. Read more in this article, “Is Zillow Accurate.”
Each report must reflect a credible estimate of value and must identify the following:
- The client and other intended users
- The intended use of the report
- The purpose of the assignment
- The type of value reported and the definition of the value reported
- The effective date of the appraiser’s opinions and conclusions
- Relevant property characteristics, including location attributes, physical attributes, legal attributes, economic attributes, the real property interest valued, and Non real estate items included in the appraisal, such as personal property, including trade fixtures and intangible items
- All known: easements, restrictions, encumbrances, leases, reservations, covenants, contracts, declarations, special assessments, ordinances, and other items of a similar nature
- Division of interest, such as fractional interest, physical segment and partial holding
- The scope of work used to complete the assignment
In communicating an appraisal report, each appraiser must ensure the following:
- That the information analysis utilized in the appraisal was appropriate
- That significant errors of omission or commission were not committed neither individually nor collectively
- That appraisal services were not rendered in a careless or negligent manner
- That a credible, supportable appraisal report was communicated
According to a statement within the Uniform Standards Of Professional Appraisal Practice (USPAP), the person who engages the service of the appraiser is the client.
Therefore the completed appraisal report belongs to that person. Payment is not a determining factor in the ownership of the completed report.
Lenders are required by the Equal Credit Opportunity Act to furnish a copy of the appraisal to the borrower, if the borrower request a copy in writing. To obtain a copy of the appraisal report contact the lender directly.
Each state has established its own requirements for appraisers to be licensed or certified to appraise real property. See this list of State Appraisal Regulatory Agencies.
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