USPAP COMPLIANT APPRAISALS
SinnenGreen & Associates strongly supports the strict enforcement of laws against dishonest and incompetent appraisers. Under the new program established by the U.S. Department of Housing and Urban Development (HUD), appraisers must pass a comprehensive examination and submit an application to be included on the Federal Housing Administration (FHA) Roster of Approved Fee Appraisers. HUD then reviews each applicant's past performance before approving them. Every one of our appraisers has passed the examination and has been placed on the FHA Roster of Approved Fee Appraisers.
WHY DO I NEED TO GET AN APPRAISAL?
The purpose of appraisals varies. Despite the reasons, SinnenGreen & Associates want to make sure you receive a quality and fair appraisal. Here are a few common situations in which you may require/desire an appraisal:
• The purchase of an existing property, ordered by the mortgage lender
• New construction, ordered by mortgage lender
• Refinancing an existing loan, ordered by mortgage lender
• Additions or remodeling, ordered by mortgage lender
• Relocation, sponsored by employer but ordered by transferee
• Estate valuation, ordered by attorney or executor of the estate
• Elimination of mortgage insurance, ordered by the homeowner
• Divorce ordered by an owner or their attorney
WHAT TYPES OF PROPERTIES CAN YOU APPRAISE?
Just as the purpose of appraisals varies, so do the types of properties that we are able to appraise.
• Full (URAR)
• Exterior Only (2055)
• Condominiums and Townhouses
• Small Multi-Family 2-4 Units
• Investment Properties
• Vacant Land
• Mobile and Modular Homes
• Desk and Field Reviews
• Estate Planning
• VA appraisal (availability varies by location)
• and more!
HOW CAN I DROP MORTGAGE INSURANCE?
Private Mortgage Insurance (PMI) is designed to protect the lender in case of default. PMI payments range from $25 to $150 or more per month. Most homeowners are paying for PMI, but many of them do not have to pay.
Most mortgage companies allow homeowners to drop PMI if they have:
• Had the mortgage for at least 2 years
• Good credit history
• A loan balance that is 80% or less of the appraised value.
How can you tell if your loan balance is 80% or less of the appraised value? Divide your current mortgage balance by the original mortgage amount plus equity. You can calculate equity by adding improvements, additions, and the increase in property values. Normally all that is required to stop paying mortgage insurance is an appraisal. Most lenders allow homeowners to obtain their own appraisals, and SinnenGreen & Associates has the experience and knowledge to assist you!
WHAT IS AN APPRAISAL
A home purchase is the largest, single investment most people will ever make. Whether it's a primary residence, a second vacation home or an investment, the purchase of real property is a complex financial transaction that requires multiple parties to pull it all off.
Most of the people involved are very familiar. The Realtor is the most common face of the transaction. The mortgage company provides the financial capital necessary to fund the transaction. The title company ensures that all aspects of the transaction are completed and that a clear title passes from the seller to the buyer.
So who makes sure the value of the property is in line with the amount being paid? There are too many people exposed in the real estate process to let such a transaction proceed without ensuring that the value of the property is commensurate with the amount being paid.
This is where the appraisal comes in. An appraisal is an unbiased estimate of what a buyer might expect to pay - or a seller receives - for a parcel of real estate, where both buyer and seller are informed parties. To be an informed party, most people turn to a licensed, certified, professional appraiser to provide them with the most accurate estimate of the true value of their property.
So what goes into a real estate appraisal? It all starts with the inspection. An appraiser's duty is to inspect the property being appraised to ascertain the true status of that property. He or she must actually see features, such as the number of bedrooms, bathrooms, the location, and so on, to ensure that they really exist and are in the condition a reasonable buyer would expect them to be. The inspection often includes a sketch of the property, ensuring the proper square footage and conveying the layout of the property. Most importantly, the appraiser looks for any obvious features - or defects - that would affect the value of the house.
Once the site has been inspected, an appraiser uses two or three approaches to determining the value of real property: a cost approach, a sales comparison and, in the case of a rental property, an income approach.
The cost approach is the easiest to understand. The appraiser uses information on local building costs, labor rates and other factors to determine how much it would cost to construct a property similar to the one being appraised. This value often sets the upper limit on what a property would sell for. Why would you pay more for an existing property if you could spend less and build a brand new home instead? While there may be mitigating factors, such as location and amenities, these are usually not reflected in the cost approach.
Instead, appraisers rely on the sales comparison approach to value these types of items. Appraisers get to know the neighborhoods in which they work. They understand the value of certain features to the residents of that area. They know the traffic patterns, the school zones, the busy throughways; and they use this information to determine which attributes of a property will make a difference in the value. Then, the appraiser researches recent sales in the vicinity and finds properties which are ''comparable'' to the subject being appraised. The sales prices of these properties are used as a basis to begin the sales comparison approach.
Using knowledge of the value of certain items such as square footage, extra bathrooms, hardwood floors, fireplaces or view lots (just to name a few), the appraiser adjusts the comparable properties to more accurately portray the subject property. For example, if the comparable property has a fireplace and the subject does not, the appraiser may deduct the value of a fireplace from the sales price of the comparable home. If the subject property has an extra half-bathroom and the comparable does not, the appraiser might add a certain amount to the comparable property.
In the case of income producing properties - rental houses for example - the appraiser may use a third approach to valuing the property. In this case, the amount of income the property produces is used to arrive at the current value of those revenues over the foreseeable future.
Combining information from all approaches, the appraiser is then ready to stipulate an estimated market value for the subject property. It is important to note that while this amount is probably the best indication of what a property is worth, it may not be the final sales price. There are always mitigating factors such as seller motivation, urgency or ''bidding wars'' that may adjust the final price up or down. But the appraised value is often used as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. The bottom line is: an appraiser will help you get the most accurate property value, so you can make the most informed real estate decisions.
If you have any questions about an appraisal or if an appraisal would be beneficial to you we would be glad to discuss them with you.