When do I need an Appraisal

An appraisal is necessary whenever real property is used as collateral in a loan agreement.  Examples of a loan agreement that use real property as collateral include a mortgage, home equity loan, construction loan, home improvement loan, etc...

Other uses of an appraisal include...

• If your paying mortgage insurance (PMI/MI), an appraisal is required by your lender to calculate your equity position in the property.  If you have more than 20 percent equity stake in the property, your PMI/MI can be cancelled.

• Estate settlement, taxation and planning

• Tax Certiorari   (Back to Top)

How is Value Determined?

Value is determined via the correct employment of one or more Approaches to Value;

The Direct Sales Comparison Approach:  This approach to value is most commonly used with one to four family homes where sales of comparable properties are plentiful.  In this approach, the subject is compared to like homes and adjustments are made to the reflect differences between the comparables and the subject.  Comparable homes are almost always located in the same neighborhood as the subject and are located within one mile and have sold within the last 12 months. 

The Income Approach: This approach to value is most often used when appraising multi-family homes and/or other income producing properties.  In this approach to value, the subjects market rent is applied to a capitalization rate in order to calculate the present value of future earnings generated by the subject property.    (Back to Top)

Is an Appraisal the same as a Home Inspection?

Under the HUD "Homebuyer Protection Initiative" homebuyers with FHA mortgages must receive a new form written in plain English that summarizes all the defects found by the appraiser before they purchase a home.  The homebuyer can not receive the FHA mortgage until all the defects have been corrected.  The real estate community is troubled by this new requirement because of the inability of appraisers to detect the physical defects and possible problems within a home.

Real estate appraiser are trained in the valuation of real property and are not home inspectors.  Generally, real estate appraisers do not climb on the roof, remove the cover from electrical boxes or examine the furnace and appliances as would a home inspector.  Home inspectors are trained to be experts in all facets of construction and conduct an on-site inspection which may last up to four hours.  Appraisers perform a different service with a different level of expertise than a professional home inspector.  

Consumers should not be confused by the new HUD initiatives or the television commercials which portray an appraiser as a home inspector.  

Many home buyers mistakenly believe that a HUD appraisal and inspection is a guarantee that the property is free from defects.  In fact, the FHA appraisal only establishes the market value of the property for mortgage insurance purposes.  Buyers need to secure their own home inspection through the services of a qualified inspector.    (Back to Top)

What is the Appraisal Process?

The Appraisal (Valuation) process begins when the appraiser identifies the problem and ends when the appraiser reports a conclusion to the client. This involves six steps which are consistently applied to all assignments;

1. Definition of the Problem: In a nutshell, this involves identifying the property to be appraised, assessing the scope of the appraisal assignment, defining the valuation date, the use of the appraisal and the property rights to be appraised.

2. Data Collection: This is a preliminary analysis to determine the character and scope of the assignment. It involves researching the local market, identifying the value influencing factors and the appropriate valuation tools necessary.

3. Highest and Best Use Analysis: The concept behind this analysis is that the land is the main source of all value and the improvements to the land (i.e. the house/building erected on the site, garages, pools, etc...) contribute to the land value. Therefore, the improvements should contribute the greatest possible return. For instance, a building lot in New York City should not be improved with a single family house if a large multi family building is allowed. It is obvious in this instance that a multi-family building would contribute a greater amount to the land value than would the single family house.

4. Land Value Estimate: Because the land is the source of all value, a precise estimate of the land value is needed. The most typical method of estimating land value in New York is via the Sales Comparison Approach or the Extraction method.

5. Application of the Three Approaches to Value: These are three specific appraisal procedures which when employed correctly result in three separate indications of value. The three approaches include the Cost Approach to Value (how much would it cost to acquire a site and construct a exact reproduction of the improvements?) The Sales Comparison Approach (How much are similar properties selling for in my area?) and the Income Approach (how much could I rent my property for today and how much will this be worth in the future?).

6. Reconciliation of the Value Indicators: Based on the three approaches to value as defined above, which one is most applicable to the definition of the problem.   (Back to Top)

What qualifications should I look for in an Appraiser?

All states require that a real estate appraiser be licensed an/or certified to in order complete an appraisal assignment. The requirements for this varies depending on classroom hours and experience. Currently, a minimum of 125 classroom hours and two years appraisal experience are required.

A select few appraisers further advanced their knowledge base and belong to the Appraisal Institute which bills itself as the premiere real estate appraisal organization in the nation. The Appraisal Institute requires that its members complete a more rigorous education with routine testing, continuing education requirements and a demonstrated knowledge of the industry. Members of the Appraisal Institute hold either an SRA (residential member) or MAI (commercial member) designation. Typically, members of the Appraisal Institute are among the most qualified real estate professionals in the industry.  (Back to Top)

Why should I choose the NY Appraisal Mgmt. Co.?

• Professionalism: With more than sixteen (16) years of experience, we are able to provide you with the exact product you need. Whether it be a limited appraisal (i.e. letter of opinion), a form report (acceptable to all lenders) or a complete narrative (typically utilized by attorneys). We will take the time to speak with you to understand your needs for the appraisal and develop the exact product which satisfies those needs.

• Quality: All our appraisers are state licensed and/or certified and each report is reviewed by a member of the Appraisal Institute. As such, your report is guaranteed to be of the highest possible quality. Further, each appraiser specializes in a specific and defined area. Their knowledge is complete, in-depth and up to date regarding your individual neighborhood.

• Service: The appraisal is a commodity and what sets the New York Appraisal Management Co. apart is its commitment to service. Our appraisals are prepared with you in mind and delivered in the timeframe promised.  (Back to Top)