Category: For Homeowners

Appraiser Jargon Defined

We don’t mean to speak a foreign language, but any profession has its jargon. Here are some examples of common appraiser jargon and their meanings:

Adjustment.  When comparable properties have been identified, the appraiser makes adjustments to the Sales Price of each of the comparables to bring them into equivalency with the subject property, accounting for differences in location, construction quality, living area, acreage, frontage, amenities and the like.  This is where the professional expertise of an appraiser is most valuable.

Comparable or “Comp”.  Properties like the subject property nearby which have sold recently, used as a basis to determine the fair market value of the subject property.

Drive-by.  An appraisal that is limited to an exterior-only examination of the Subject to make a determination that the property is actually there and has no obvious defects or damage visible from the outside.  Fannie Mae’s form for this type of appraisal is its 2055, so you may hear a drive-by referred to as a “2055.” Click here for a PDF example.

GLA.  “Gross Living Area,” the square footage of all livable, above grade floor space, including stairways and closet space.  GLA is often determined using exterior wall measurements.

Market value.  The appraiser’s opinion of value as writen in the appraisal report should reflect the fair market value of the property — what a willing & informed buyer would pay a willing seller in an arm’s-length transaction. A more thorough definition is here.

MLS.  A Multiple Listing Service is a proprietary listing of all properties on the market in a given area and their listing prices, as well as a record of all recent closed sales and their sales prices.  Although most commonly used by real estate agents, appraisers used these databases to aid in comparable selection and adjustment research.

Obsolescence.  The value of assets diminishes as their capabilities degrade or more desirable alternatives are developed.  Functional obsolescence is the presence or absence of a feature which renders the property undesirable.  Obsolescence can also occur because the surrounding area changes, making a feature of the property less desirable.

Subject.  Short for the property being appraised — the “subject property.”

Useful life.  The time during which a property can provide benefits to its owner.

URAR.  Short for Uniform Residential Appraisal Report, Fannie Mae form 1004, it is the form most lenders require if they need a full appraisal (that is, with walk-through inspection). Click here for a PDF example.

USPAP.  Short for Uniform Standards of Professional Appraisal Practice, USPAP promotes standards and professionalism in appraisal practice, and is often enacted into law in a state.  It is promulgated by the Appraisal Foundation, a non-governmental entity chartered by Congress to, among other things, maintain appraisal standards.

What is the actual square footage of my house?

When you need to know the square footage of your home, it’s helpful to rely on the services of an appraiser.  It’s not uncommon for public records to have inaccurate or out-of-date living area.  Having your home (or prospective home) measured by an appraiser is one of the most reliable ways to know the actual living area.

Appraisers are licensed, have years of experience and measure according to ANSI standards.  We are able to provide you with a building sketch with almost any level of detail you require.  If needed, we can verify permitted vs. non-permitted area, garages, outbuildings, porches, patios, decks, etc.  Let us know your needs and we can surely accommodate and provide you with exactly what you need.

Who actually owns the appraisal report once it’s complete?

For mortgage transactions, the lender orders the appraisal, either directly or through a third party. While the buyer pays for the report as part of the closing costs, the lender retains the right to use the report or any information contained within. However, the buyer is entitled to a copy of the appraisal – it’s usually bundled with all the other closing documents – but is not entitled to use the report for any other purpose without permission from the lender.

This rule doesn’t apply when the home owner engages an appraiser directly. In these situations, the appraiser may define how the appraisal can be used; for PMI removal, or estate planning or tax challenges, for example. If not noted otherwise, the home owner can do whatever they want with the appraisal.

What is “Market Value”?

In real estate appraising, Market Value (as opposed to Fair Market Value) is typically defined as:

“Market value means the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus.  Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions  whereby:
1. Buyer and seller are typically motivated;
2. Both parties are well informed or well advised and acting in what they consider their own best interests;
3. A reasonable time is allowed for exposure in the open market;
4. Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and
5. The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.“

What is the difference between an Appraisal and a Comparative Market Analysis (CMA)?

Both are useful tools, but are for very different purposes and have little in common.

A CMA relies on ill-defined trends, while an appraisal utilizes comparable sales that can be validated by records. The appraisal verifies other factors like condition, amenities, neighborhood, and construction costs. The CMA will provide a non-specific figure. An appraisal delivers a defensible and carefully documented opinion of value.

The appraisal is produce by a licensed, certified professional who has made a career out of valuing properties and who has no personal bias or stake in the results. Although knowledgeable and helpful, a real estate agent providing a CMA potentially has something at stake since they get a commission based on the property’s selling price.

What is the difference between an Appraisal and a Home Inspection?

Appraisers are not home inspectors. An inspection is a third-party evaluation of the livable structure and electrical and mechanical systems of a property, from the roof to the foundation. The general home inspector’s report will contain an evaluation of the integrity of the house’s heating systems, central air conditioning system (temperature permitting), interior plumbing and electrical systems, the roof, attic, and accessible insulation, walls, ceilings, floors, windows and doors, the foundation, basement, and visible structure.

Which home renovations add the most value?

It really depends on the market. But, generally speaking, the best Return On Investment (ROI) comes from renovating the kitchen or baths. According to one national survey, kitchen/bath remodels returned an average of 50% to 90% of the investment.

Adding bedrooms and baths can also help the value of your home as long as your home doesn’t then become an oddball for your neighborhood in terms of size.

How do I get ready for the appraiser?

The first step in most appraisals is the property inspection. During this process, we will come to your home and measure it, determine the layout of the rooms inside, confirm all aspects of the home’s general condition, and take photos of your house for inclusion in the report.

When the appraiser has arrived, you do not need to escort them along on the entire site inspection, but generally you’ll want to be present to answer questions about your property and be willing to point out any home improvements.

The best thing you can do to help is make sure the appraiser has easy access to the exterior of the house. Trim any shrubs and move any items that would get in our way while we measure the structure. Indoors, make sure we can easily access appliances like furnaces and water heaters, as well as smoke & carbon monoxide detectors.

To help expedite our work plus ensure a more accurate report, try if possible to have the following items:

    • Any information on the purchase of the property for the last three years.
    • Written property agreements, such as a maintenance easement for a shared driveway.
    • A list of any major home improvements and upgrades, the date of their installation and their cost (for example, the addition of Energy efficiency upgrades or roof repairs) and permit confirmation (if available).
    • Information on “Homeowners Associations” or condominium covenants and fees.

What is an appraisal?

The appraisal process is an estimation that generates an opinion of value. The appraiser may use one or multiple “approaches” to conclude the estimation of market value:

    • The Sales Comparison Approach involves with finding sales of similar houses (or “comps”) and making a comparison of those houses to the home in question (or “subject”) to determine value. The Sales Comparison Approach is normally the most definitive and best indicator of value for a home.
    • The Cost Approach involves concluding what the improvements would cost less physical depreciation, plus the land value. This approach is less reliable with older homes, but is sometimes still requested by the client.
    • The Income Approach involves estimating what an investor would pay based on the capital generated by the property. It is of most importance in appraising income producing or rental properties. In an owner-occupied neighborhood, this approach would not typically be applicable.

Three Approaches