Thomas Murphree, the principle broker of Birch Tree Realty Resources in Memphis, is now the president-elect of the Memphis Area Association of Realtors (MAAR). Birch Tree provides clients with concise appraisals and personalized brokerage services. Thomas' day-to-day business is about formulating impartial and well substantiated determinations of market value, to be used in making real estate transactions.
Real Estate Appraisals Have Many Purposes
Those not familiar with the real estate business often confuse appraisals, home inspections, and comparative market analysis (CMA). Each is distinctively different. The home inspection gives you a top to bottom report of the condition of the home but does not assign a dollar value to it. The CMA comes close to being an appraisal but tends to be on the high side of the market value. However, the appraisal must conform with the Uniform Standards of Professional Appraisal Practice (USPAP).
Appraisals are most often ordered by mortgage companies and paid for by the buyer. However, an estate might order an appraisal if heirs can't come to agreement on the value of the home. Appraisals are used for the same reason in contested divorces. Another reason an appraisal might be ordered is when a homeowner wants to show a lender they have at least 20% equity in the home so that they can end private mortgage insurance payments. Not as frequently but some times, a seller will order an appraisal when listing a home for sale to demonstrate clear market value to potential buyers.
How You Can Improve an Appraisal
The appraiser needs to view the entire home. As the homeowner, you need to begin by picking up any clutter and making sure the appraiser can get to things like furnaces and water heaters. It's also helpful if you make available any records on the latest purchase of the property in the last three years. A list of any personal property that will be left behind and sold with the home, such as an oven, or a washer and dryer, if applicable. Any paperwork, such as a title policy with information on encroachments or easements is also useful. Also, if you've had a home inspection done, the results will also be used by the appraiser to help determine the value of the home.
Adding amenities or additions to a home is very dependent on the local market. Adding central air conditioning to a home in the south increases value much more than adding air conditioning to a home in the Pacific Northwest. Nationally, remodeling a kitchen adds the most value and remodeling a bathroom adds the second most value. However, you seldom recoup your full remodeling costs. On average, remodeling a kitchen recovers 88% of the cost and the bathroom recovers 85%. A good strategy is to remodel a couple of years before you sell so that you have time to enjoy the improvements before selling.
Although, in most real estate transactions the buyer ultimately ends up paying for the appraisal, it's the lender that orders it and is the official owner of it. The buyer obtains a copy of it at or before closing but without the lender's permission, the buyer cannot use the report for any purpose other than for the lender to ascertain the true market value of the home. Under different circumstances, the appraiser may note that the appraisal is intended for other purposes such as to remove private mortgage insurance or to support a tax dispute but again the appraisal will be limited to that purpose in most situations.
About the author: Brian Kline has been investing in real estate for more than 30 years and writing about real estate investing for seven years. He also draws upon 25 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest in the Olympic Mountains with the Pacific Ocean a couple of miles in the opposite direction.