Lewis S. Lerman Associates has answers to "Frequently Asked Questions"
Define the term "Appraisal"
Define the term "Appraisal"(See list of FAQ's) The method of writing an appraisal report deals with an evaluation which forms an opinion of value. This opinion or estimate is discerned by a formal process that typically uses the three main "common approaches to value". One of them is the Cost Approach - which is what it would cost to replace the improvements, less physical deterioration and other factors, then adding the land value. Another of the processes is the Sales Comparison Approach - which involves finding a comparison to other similar nearby properties which have recently sold. Usually, the Sales Comparison Approach is the most accurate indicator of market value of a residential property. The Income Approach is generally used for finding the market value of income-producing properties based on what an investor would pay based on the amount of capital a property would bring in.
Describe what an appraiser does(See list of FAQ's) An appraiser forumlates a fair and credible assessment of market value, to be used in making real estate transactions. Appraisers show their conclusions in appraisal reports.
Why would a person need a real estate appraisal?(See list of FAQ's) There are many reasons to obtain an appraisal from Lewis S. Lerman Associates with the usual reason being real estate and mortgage transactions. Some other reasons for ordering an appraisal report include:
How is an appraiser different than a home inspector? (See list of FAQ's)The appraiser is not a home inspector and he or she does not do a complete home inspection. A third-party home inspector will evaluate the structure of the house, from the roof to the foundation. Generally, a home inspection report will discuss the amenities and the requirements of the house: air conditioning (weather permitting), electrical systems, the condition of the heating system, the plumbing; then the structural integrity of the home such as the attic, visible insulation, walls, floors, ceilings, windows, then the foundation, basement and other visible structures.
What is the difference between an appraisal and a comparative market analysis (CMA)?(See list of FAQ's) Honestly, they share nothing in common. The CMA utilizes market trends to conduct most of their business. An appraisal is based on comparable sales that can be validated by public record. The appraisal report will also include area and construction values. The CMA will provide a non-specific figure. Being a documented and carefully investigated opinion of value, appraisals are defensible and stand up in legal situations.
But the largest differentiator is the person behind the report. Real estate agents, who may not have a complete understanding of valuation methods or the entire market, create CMA's. A certified, Pennsylvania licensed professional who bases their livelihood on valuing real estate in and around Montgomery County creates the appraisal. Likewise, the agent has a vested interest in the property's selling price - their commission - whereas the appraiser is bound by a code of ethics to accept a flat fee for work they perform, regardless of their outcome.
What are the contents of an appraisal report? (See list of FAQ's)The main point of an appraisal report is to let the reader know the value of the real estate in question, and depending on the scope of the report, you'll usually see the following:
Once the report has been completed, how can I have certainty that the value conclusion is accurate?(See list of FAQ's) In communicating an appraisal report, each appraiser must ensure the following:
Who are an appraiser's customers?(See list of FAQ's) Most of the time, appraisers are hired by lenders to render a value opinion on real estate involved in a loan transaction. Attorneys and CPAs also retain the services of appraisers for asset division and estate settlements.
Where does Lewis S. Lerman Associates get the data used to estimate values in Montgomery County or other areas?(See list of FAQ's) Compiling information is one of the primary occupations of an appraiser. Data can be classified as either Specific or General. Specific data is collected from the property itself; Location, condition, amenities, size and other specifics are documented by the appraiser while on site.
General data is received from a number of places. Local Multiple Listing Services (MLS) have information on recently sold homes that could be used as comparables. To double-check actual sales prices, we use items in the assessor's office and other public documents. Appraisers routinely have to report when a property lies in a flood zone, and that information is retrieved from a FEMA data outlet such as a la mode's InterFlood product.
And last but not least, the appraiser assimilates general data from his or her collective knowledge gained from creating appraisals for other houses in the same market.
Why should I hire a licensed appraiser?(See list of FAQ's) An appraisal is a worthwhile anytime the value of your home is relevant to a financial decision. When selling your home, an appraisal helps you set the most appropriate price. When buying, you can avoid overpaying by getting an independent appraisal. For people settling an estate or divorce, an appraisal from Lewis S. Lerman Associates is the best documentation to ensure assets are split up properly. Simply put, a home is often the single, largest financial asset anybody owns. Without knowing its real value, wise financial decisions are impossible.
My mortgage statement has an item on it for PMI? Can I get rid of that?(See list of FAQ's) PMI is short for for Private Mortgage Insurance. This added plan covers the lender if a borrower doesn't pay on the loan and the market price of the home is less than the balance of the loan. You can have your PMI dropped once you've achieved 20% equity in your home through appreciation and principal payments.
Does the appraiser need anything from me in advance?(See list of FAQ's) We begin with an inspection of the property. What this entails is the appraiser, after setting up an appointment, personally going through the home - recording the layout of the rooms, taking photos and documenting the general condition of its amenities. Inside, make sure it is clutter free and that we can find our way to things like furnaces and water heaters. On the outside, trim any landscaping so we can be free to get an accurate measurement of outside walls.
To help speed things along as well as ensure a more accurate report, attempt if possible to have the following items:
What is "Market Value?"(See list of FAQ's) In real estate appraising, Market Value is commonly defined as:
Does the appraisal belong to the bank or the consumer?(See list of FAQ's) In most real estate transactions, the appraisal is ordered by the lender. While the buyer 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 buyer is entitled to a copy of the appraisal - it's usually included with all the other closing documents - but is not allowed to use the report for any other purpose without permission from the lender.
The exception to this rule is when a home owner engages an appraiser directly. In these situations, the appraiser may define how the appraisal can be used; for PMI removal, or estate planning or tax challenges, for example. If not stipulated otherwise, the home owner can use the appraisal for any purpose.
How can I get the most ROI out of home improvements?(See list of FAQ's) The answer to this is different depending upon the location of the home. For example, adding a central air conditioner in to a home in the South may add significant value, while putting one in a home near the Pacific Northwest might not have much impact.
As a rule, the most value returned from renovating a home comes in the kitchen. One recent study revealed that putting $20,000 into a kitchen remodel would add about $17,500 to the value of the home - or about an 88% return on investment. Bathrooms weren't far behind, yielding 85%. Adding bedrooms and baths can also increase the value of your home as long as your home doesn't then become atypical for your neighborhood in terms of size.