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Appraisals
Question: How often should I have my property appraised, and why is this important? I don't even know how to get started. I have owned my home since 1999.Answer: There is no set guideline for the frequency of having a property appraised. Typically, some other event creates a need for obtaining an appraisal such as refinancing of a loan, PMI removal or getting a home equity line of credit.
The importance of an appraisal depends on its purpose. When an appraisal is obtained for a home mortgage, the purpose is to protect the lending institution from losses on a default. An individual may also want an appraisal for financial planning or estate purposes. Beware that if the purpose is for mortgage lending, the institution cannot accept an appraisal prepared directly for the homeowner.
The first step in getting an appraisal is to find a licensed appraiser with experience in your local market. Try contacting a REALTOR® that works in your area to get several recommendations.
Larry Mitchell
Mitchell Appraisals, Inc.
Question: I am a first-time homeowner. If my property taxes increase, it is going to affect the value of my home?
Answer: Residential homebuyers and lenders both consider monthly ownership costs prior to a purchase. That being the case, increases in these costs can affect the affordability of the property. The result could be fewer buyers that can afford the home. Naturally, this can cause the property value to erode. Home prices are often tied to those factors that impact the monthly costs—such as insurance, increasing interest rates causing higher monthly mortgage payments, utility charges, and property taxes. Increasing property taxes can affect the value of homes and other property categories as well. However, the potential impact is often offset if competing properties also incurred a similar increase. Regardless, like changes in interest rates, if property taxes increase, monthly ownership costs will increase accordingly. This could potentially exclude some buyers from considering the property. Real estate markets are dynamic and are always vulnerable to economic changes. That is why real estate is considered to be a long-term asset—its value should be evaluated over the course of many years, not just one. Over time, increasing property taxes are a reality, and market appreciation can often counter any negative influence.
David B. Cain, MAI, CCIM
West Clay Realty
Question: "We purchased a foreclosed home in 2001. The home was bought new in 1996 with a purchase price in the mid $170s. The homeowner later got a second mortgage or home equity of some sort. We bought the home through the bank for $136,000 and were dismayed when the appraisal was the same as the purchase price. The REALTOR® we were working with informed us that this was a common occurrence. Our insurance agent later appraised the value at $180,000 for insurance, and we were happy. This month, we went to a local bank for a home equity loan to finish work on our house, and they appraised it at $140,000. Our equity loan was approved, but at a higher rate because we were borrowing more than 80 percent of LTV ratio. How can we get a true appraisal that everyone will use?"
Answer: I understand your confusion—many services can generically be called an "appraisal." The purpose and intended use of an appraisal for insurance is significantly different than an appraisal for mortgage lending. The insurance company's purpose is to determine an estimate of costs to rebuild your house if it were destroyed. This may or may not relate to the market value of your house assessed in your mortgage appraisal. The factors considered in each situation are different, and, therefore, resulting values may be significantly different, too.
When being used for mortgage lending, a majority of residential real estate appraisals will return at the purchase price. This is because the purchase price is typically between a willing buyer and a willing seller, and reflects all the factors of an open market. If you believe you got a good deal, discuss the local market and your specific transaction with the appraiser to make sure they understand all the factors.
Larry Mitchell
Mitchell Appraisals, Inc.
Question: "I have owned my home since 1998. How often should I have the property appraised, and why is this important? I don't know what to expect from the experience, or even how to get started."
Answer: It is not always necessary to have your home appraised on a yearly basis. Since 1998, you can expect appreciation in your home. The amount of appreciation can vary in percentage as a result of the current market, the area you live in, and the way you have maintained your home. Since a home is usually the largest single investment anyone has, it is wise to monitor how that investment is growing. An appraiser can do this (for a fee) by evaluating the current market in your neighborhood, and by comparing your home to similar houses. A REALTOR® can also provide this service by using the same information—in fact, a REALTOR® does a similar analysis for every home they list for sale. A good suggestion might be to call your REALTOR® and ask them to periodically do a market analysis on your home —once a year, perhaps. Whether you are refinancing or getting a second mortgage and are required to provide an appraisal to your lender, or are just curious about your home and neighborhood—call your REALTOR®.
Vicki Kenworthy Wright
Carpenter, REALTORS®
Question: "We are considering refinancing, and are curious about how our home will be valued. Could you explain what factors contribute to the value of my home?"
Answer: There are several factors an appraiser will consider when establishing a value for your home. They will consider the square footage, amenities, the age of the home, lot size, out buildings, porches, garages, landscaping, updates, and condition. They will compare your home and those attributes against other homes on the market, as well as previously sold homes, pending sales, and withdrawn and expired data for your neighborhood and surrounding areas. Usually, they will calculate both a depreciated cost approach, as well as the sales market approach to establish a value.
If you are considering a refinancing option, contact your REALTOR® and ask them to provide a market analysis for your home. This will provide a similar comparison that can give you an idea of what you should expect. The rates have been really fantastic lately, so it's a great time to look at all your options.
Kathy Hall
Century 21 Realty Group I
