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Appraisals

Appraisals are needed to accurately determine the loan-to-value of the loan and also inspect the property's condition. An appraisal report is only good for 90 days and most mortgage companies will require a certified appraiser.

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General Appraisal Methods

The appraiser obtains an estimated value through the interpretation of the market. The appraiser collects data pertinent to a report, such as the site, amenities and the physical condition of the property. Through considerable research and data collection of both general and specific, the appraiser arrives at the final estimated value.

The three common approaches to arriving at the estimated value, which are derived from the market, are:

1. Cost Approach: the cost to make the improvements as of the date of the appraisal, minus the Physical Deterioration, the Functional Obsolescence and the Economic Obsolescence. The remainder is added to the Land Value.
2. Comparison Approach: uses other "bench mark" properties of similar size, quality and location that have been recently sold and compares it to the subject property.
3. Income Approach: a key principal in determining the value of income producing properties and has little importance in residential type properties. This approach is used to get an objective estimate of what a cautious investor would pay based upon the net income the property produces.

Helping the Appraiser

After choosing an appraiser, provide the following information:

• The purpose of the appraisal.
• The required completion date of the appraisal.
• If property listed is for sale, the amount and with whom.
• If there is a mortgage, with whom, when it was placed, for how much, type of mortgage [FHA, VA etc.], interest rate, and any other types of financing.
• Included personal property, such as appliances.
• If it is an income producing property, a breakdown of income and expenses for the previous year or two and a copy of leases.
• A copy of deed, survey, purchase agreement or other pertinent papers pertaining to the property.
• A copy of current real estate tax bill, statement of special assessments, balance owing and on what [sewer, water, etc.].

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