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Frequently Asked Questions
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What is an appraisal?
An appraisal is a thought process leading to an opinion of value. This opinion or estimate is arrived at through a
formal process that typically uses the three ''common approaches to value''. They are the Cost Approach - which
is what it would cost to replace the improvements, less physical depreciation and other factors, plus the land
value. There is the Sales Comparison Approach - which involves making a comparison to other similar, nearby
properties, which have recently sold. The Sales Comparison Approach is normally the most accurate and best
indicator of value for a residential property. The third approach is the Income Approach, which is of most
importance in appraising income-producing properties - it involves estimating what an investor would pay based
on the income produced by the property. [top of Page]
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What is the difference between an appraisal and a home inspection?
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.
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What is the difference between an appraisal and a comparative market analysis (CMA)?
The appraisal relies on specific, verifiable comparable sales and considers factors such as condition, location, site size, GLA and room count. In addition, the appraiser utilizes the Cost Approach and Income Approach if the property is owned for investment. An appraisal delivers a defensible and carefully documented opinion of value. A CMA lists properties which have sold or are active listings and does not make any adjustments for the differences between the subject property and these properties. The CMA delivers a “ball park figure.” [top of Page]
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What is contained in the appraiser’s report?
Each report must reflect a credible estimate of value and must identify the following:
- Client and other intended users
- Intended use of the report
- Purpose of the assignment
- Type of value reported and the definition of the value reported
- 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.
- Known easements, restrictions, encumbrances, leases, reservations, covenants, contracts, declarations, special assessments, ordinances, and other items of a similar nature
- Scope of work used to complete the assignment. [top of Page]
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How are appraisers licensed and certified?
Regulations regarding licensing and certification of Real Estate Appraisers vary from state to state. However,
licensing and certification in Rhode Island requires many hours of coursework, tests and practical experience.
Once an appraiser is licensed, he or she is required to take continuing education courses in order to keep the
license current. [top of Page]
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Who do appraisers work for?
Typically, appraisers are employed by lenders to estimate the value of real estate involved in a loan transaction. Appraisers also provide opinions for attorneys in litigation cases, tax matters and investment decisions. Second, homeowners often need an appraisal to determine a value when selling their homes, removal of PMI, estate work of divorce. [top of Page]
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Where does an appraiser get the information used to estimate value?
Gathering data is one of the primary roles of an appraiser. First, the appraiser does an “on site” home inspection and collects information pertinent to the home itself. Factors such as the location, condition, size of dwelling, amenities and other specific data. General data is gathered from a number of sources. Local Multiple Listing Services (MLS) provide data on recently sold homes that might be used as comparables. Tax records and other public documents verify actual sales prices in a market. Flood zone data is gathered from FEMA data outlets, the appraiser gathers general data from his or her past experience in creating appraisals for other properties in the same market. [top of Page]
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Why do I need a professional appraisal?
Determining the value of your home or other real property to make a significant financial decision needs a professional appraisal. Whether you are selling, buying or considering refinancing, your home is often the single largest asset you own. Therefore, knowing its true value means you can make the right financial decision. [top of Page]
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What is Market Value?
Market value is the most probable price that a property should bring (will sell for) in a
competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting
prudently, 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; (3) a reasonable time is allowed for exposure to the open market; (4) payment is made in terms of
cash in US. 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. [top of Page]
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Who Owns the Appraisal Report?
In most real estate transactions, the lender/client orders the appraisal. While the homebuyer pays for the report as part of the closing costs, the lender retains the right to use the report or any information contained within. The homebuyer is entitled to a copy of the report -it’s usually included with all of the other closing documents but is not entitled to use the report for any other purpose without permission from the lender. The exception to this rule is when a homeowner engages an appraiser directly. [top of Page]
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What is PMI and how can I get rid of it?
PMI stands for Private Mortgage Insurance. It insures a lender against loss on homes purchased with a down
payment of less than 20%. Once equity in the home reaches 20% you can eliminate the PMI and start saving immediately. [top of Page]
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