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 Useful Information about appraisal services.

7  Things an automated or non-appraiser valuation won’t tell you (AVM’s)

Lenders and brokers using Automated Valuation Models (AVMs) and homeowners using “free online home values” to determine the value of a property need to know what those results aren’t telling them.

Whether the house is really there. A computer can’t so much as drive by a house to see if it’s actually located where it’s supposed to be, has four walls and a roof, and really is a four bedroom split level and not a one bedroom shack.

 

Whether unique features of a property might add to or detract from market value. So a computer returns an estimated value of $150,000. Did it account for the sewage treatment station next door? The railroad tracks nearby with trains that blow their whistles every night? The school district? The desirability of its tree-lined street versus the next street over?

 

How long ago the property was assessed. Many AVMs and free online services rely on public assessment records. In many states, for example, assessments may only be required every three years — the value may be nearly three years old in that case. Some states mandate that an assessed value not increase beyond a certain percentage, even if sales activity indicates the property has appreciated far more. When you use an AVM or free online service, you risk a lower value than reality.

 

What makes the comparables comparable. A computer might compare your subject property to another property with similar square footage sold three months ago a quarter of a mile away. Even if that “comparable” property is in a different, less desirable school district, fronts a four-lane, 55 M.P.H. street, and is flood-prone. Or even if the property was sold under duress, such as in a divorce situation, or not at arm’s length, such as to a family member. A computer simply does not know all the adjustments that might need to be made to a “comparable” property’s sales price.

 

Whether a market is declining. Automated valuations use data from recent, nearby sales. If those sales were completed at the peak of a local housing market, the computer will think the trend is going up. Even if a professional appraiser knows that the overall neighborhood is beginning to experience a downturn. As a lender, don’t get stuck with a property that’s been overvalued by a computer.

 

Whether there is a conflict of interest. Free online home values are often farmed out to real estate agents in your area, who use the service to get your listing when you decide to sell. The best way to do that is to impress you with their confidence that they can get a higher price for your property. If they tell you your property is “worth” the high end of what they believe they can sell it for, the theory goes, you’re more likely to sign a listing agreement. With most things, it’s best to “under promise and over deliver” — but the opposite is true when you use a free online home value service.

 

What qualifications, designations, experience and education the preparer of the value has. When you work with an appraiser, you can be confident we’re highly qualified, ethical and prepared to complete your assignment professionally and with good judgment. Most of the time, you don’t know the qualifications of whoever is behind those free online values, and they couldn’t compare to an appraiser’s if you did. And if you’re relying on an automated valuation, you’re cheating yourself out of an appraiser’s education, experience and expertise.

 

                                               

APPRAISAL JARGON – APPRAISAL SERVICES EXPLAINED

Have you heard an appraiser use any of these terms? Did you just hear one of our appraisers use it and you came here to figure out what it meant? We don’t mean to speak a foreign language, but any profession has its jargon. What res ipsa loquitur is to a lawyer and triple witching is to day traders, external obsolescence is to appraisers. Here are some examples of common appraiser jargon and their meanings:

 

Adjustment. 

When comparable properties have been identified, the appraiser adjusts the value of the subject property according to differences in living area, acreage, frontage, amenities and the like.  This is where the professional expertise of an appraiser is most valuable.

 

Chattel. 

Personal property that may be on the subject property but which does not figure into the opinion of value in the appraisal report.

 

Comparable or “comp”. 

Properties like the subject property nearby which have sold recently, used as a basis to determine the fair market value of the subject property.  The Uniform Standards of Professional Appraisal Practice (USPAP) establish clear guidelines for comparable selection.

 

Drive-by. 

An appraisal that is limited to examination of comparable sales and a determination that the property is actually there and has no obvious defects or damage visible from the outside.  Fannie Mae’s form for this type of appraisal is its 2055, so you may hear a drive-by referred to as a “2055.”

 

Fair market value. 

The appraiser’s opinion of value as written in his or her appraisal report should reflect the fair market value of the property — what a willing buyer would pay a willing seller in an arm’s-length transaction.

 

Liquidation Value

Liquidation value is the likely price of an asset when it is allowed insufficient time to sell on the open market, thereby reducing its exposure to potential buyers. Liquidation value is typically lower than fair market value. Unlike cash or securities, certain illiquid assets, like real estate, often require a period of several months in order to obtain their fair market value in a sale, and will generally sell for a significantly lower price if a sale is forced to occur in a shorter time period. Liquidation value may be either the result of a forced liquidation or an orderly liquidation. Either value assumes that the sale is consummated by a seller who is compelled to sell and assumes an exposure period which is less than market normal.
* The most common definition used by real estate appraisers is as follows[1]
* The most probable price that a specified interest in real property is likely to bring under all of the following conditions:
* Consummation of a sale will occur within a severely limited future marketing period specified by the client.
* The actual market conditions currently prevailing are those to which the appraised property interest is subject.
* The buyer is acting prudently and knowledgeably.
* The seller is under extreme compulsion to sell.
* The buyer is typically motivated.
* The buyer is acting in what he or she considers his or her best interest.
* A limited marketing effort and time will be allowed for the completion of a sale.
* Payment will be made in cash in U.S. dollars or in terms of financial arrangements comparable thereto.
* The price represents the normal consideration for the property sold, unaffected by special or creative financing or sales concessions.

 

GLA. 

“Gross Living Area,” the sum of all above grade floor space, including stairways and closet space.  GLA is often determined using exterior wall measurements.

 

Latent defects. 

A defect on the property that is not readily apparent but which impact the fair market value.  Structural damage or termite infestation might be examples.

 

MLS. 

A Multiple Listing Service is a proprietary listing of all properties on the market in a given area and their listing prices, as well as a record of all recent closed sales and their sales prices.  Created by and used primary by real estate agents, many appraisers pay for access to these databases to aid in comparable selection and adjustment research.

 

Obsolescence. 

The value of assets diminishes as their capabilities degrade or more desirable alternatives are developed.  Functional obsolescence is the presence or absence of a feature which renders the property undesirable.  Obsolescence can also occur because the surrounding area changes, making a feature of the property less desirable.

 

Subject. 

Short for the property being appraised — the “subject property.”

 

Useful life. 

The time during which a property can provide benefits to its owner.

 

URAR. 

Short for Uniform Residential Appraisal Report, Fannie Mae form 1004, it is the form most lenders require if they need a full appraisal (that is, with walk-through inspection).

USPAP. 

Short for Uniform Standards of Professional Appraisal Practice, USPAP promotes standards and professionalism in appraisal practice, and is often enacted into law in a state.  It is promulgated by the Appraisal Foundation, a non-governmental entity chartered by Congress to, among other things, maintain appraisal standards.

 

Walk-through. 

An inspection that includes a visit to each part of the interior of the house used in estimating value.

The Clark County, Nevada real estate market is always changing.  With the current economic slow- down it takes time and effort  for a Las Vegas appraiser or Henderson appraiser to find the data necessary to form an accurate opinion.  We use a number of data sources to discover the best comparable sales and relevant income information. 

Call Today:  Las Vegas:  702-742-4355   Chicago: 773-642-9781

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