Frequently Asked Questions

What is an appraisal?

An appraisal is the act or process of estimating value. It involves research into appropriate market areas; the assembly and analysis of information pertinent to a property; and the knowledge, experience and professional judgment of the appraiser.

What is the role of the appraiser?

The role of the appraiser is to provide an accurate and impartial, third-party estimate of real estate value – providing assistance to those who own, manage, sell, invest in and/or lend money on the security of real estate.

What qualifications must appraisers have?

At minimum, all states require appraisers to be state licensed or certified. However, the Appraisal Institute enables appraisers to go beyond these minimum requirements to currently earn a professional MAI general designation, or SRA residential designation. Appraisal Institute-designated members have fulfilled rigorous educational and experience requirements and must adhere to strict standards and a professional code of ethics.

How do well-credentialled appraisers add value to real estate transactions?

They bring knowledge, experience, impartiality and trust to the transaction. In so doing, they help protect real estate buyers from overpaying for property and lenders from over-lending to buyers.

What are the components of an appraisal?

An appraisal generally consists of: a legal description of the property; description of the interior and exterior of the property; square footage measurements; listing of comparable properties “as near the subject property as possible;” description of the neighborhood; and information regarding current real estate activity and/or market trends in the neighborhood.

What are the most important considerations in the valuation of real estate property?

The value indicated by recent sales of comparable properties, the current cost of reproducing or replacing a building, and the value that the property’s net earning power will support are the most important considerations in the valuation of real estate property.

Why are there so many different levels of reports?

Just a few years ago, most of the mortgage industry required that an appraisal be provided on the URAR form. The URAR is the most labor intensive, time consuming (therefore read "expensive") form report, due to the level of inspection and analysis that was needed to complete the report. As technology entered into the picture, it streamlined the mortgage industry. Also, at the same time, the mortgage industry became consumer-driven, driving down the cost of an appraisal. With the advent of the automatic underwriting programs, the level of risk to the lender has been shifted from collateral assessment to risk assessment. This is one reason why there are now so many different levels of form reports. Depending on a buyer's down payment and creditworthiness determines what level of appraisal is ordered. At the same time, the mortgage industry wanted to reduce the "turnaround" time, or waiting time that it takes to receive a completed appraisal report. These new automatic underwriter forms are shorter, saving the customer time. And last, the mortgage banking industry wanted to reduce the cost of an appraisal, in response to the consumer. Because the new automatic underwriter forms are shorter, with some requiring a lesser level of inspection, therefore less labor intensive, it costs less to do an appraisal. These cost savings can now be passed on back to the consumer.

How do I remove private mortgage insurance (PMI)?

If you purchased your home with a conventional mortgage with less than a 20% down payment, you are paying private mortgage insurance (PMI). Congess has just passed a law in 1998 requiring your mortgage lender to automatically cancel PMI at 78% loan-to-value (LTV). Further good news is that you don't have to wait until you pay off 22% of your current balance to remove private mortgage insurance now! All you need is a new appraisal indicating that the mortgage balance is below 80% of the current value of the property. Even in a mildly appreciating market, this would help relieve homeowners from unnecessary PMI payments.

Does Donahoe & Associates perform the new Fannie Mae and Freddie Mac (drive-by) forms?

We perform all the new Fannie Mae and Freddie Mac Forms, including the Quantitative Analysis Appraisal Report (Form 2055), the Qualitative Analysis Report (Form 2065), Property Inspection Report (Form 2075) and the Condition & Marketabiliy Report (Form 2070). We perform all these new appraisal forms at all levels of inspections (interior and exterior), with the exception of Form 2075, which is an exterior only report.

What is EDI?

EDI stands for Electronic Data Interchange. As the appraisal industry strives to find a common denominator (in the X-12 standard) to electronically send appraisal reports via modem or through the internet, we at Donahoe & Associates have the capability of sending the entire report electronically via ordinary email in real time, which dramatically cuts down on turnaround time and reports delayed in the mail. Complete reports including color digital photos, mapping and electronic signatures are available to you now.

Is there anything I can do to speed up the process?

The following items, if available, will help your appraiser to provide a more accurate appraisal in a shorter period of time. A survey of the house and property; a deed or title report showing the legal description; a recent tax bill; a list of personal property to be sold with the house if applicable; a copy of the original plans & specifications, The date and purchase price you paid when you purchased the property; a list of recent improvements & cost as well as any other information you feel may be pertinent.

What constitutes a typical appraisal?

The appraisal process is an orderly and concise method of reaching an estimate of value. The process has six major steps which include: definition of the problem, preliminary survey and appraisal plan, data collection and analysis, application of the three approaches to value, reconciliations of value indications, final estimate of defined value. This process assists the appraiser in reaching a sound conclusion. The major phase of this process involves the application of the three approaches to value which include the Market Data Approach, the Cost Approach and Income Approach. The three approaches are reconciled and the value via most applicable approach, in the opinion of the appraiser, is selected as the final estimate of value. In most residential appraisals, particulary those of single or two family dwellings, the direct sales comparison or market approach best reflects the actions of buyers and sellers and is the most convincing and defendable approach to value.

What is the market or direct sales comparison approach to value?

The market or direct sales comparison approach to an estimate of value is a process of comparing market data, that is, prices paid for similar properties, prices asked by owners, and offers made by prospective purchasers or tenants willing to buy or lease. Typically a comparison grid is used and adjustments are made to each of the comparable sales used for major differences between the comparable and the subject property for such items as location, gross living or building area, lot size, condition/effective age, market conditions, degree of remodeling, construction quality and significant amenities, ie: fireplace, jacuzzi, in ground pool, garage, deck, patio, porch and central air conditioning etc. In the market approach, the appraiser attempts to both gauge and reflect the anticipated reaction by a typical purchaser to the subject property.



Myths & Realities

Myth: Assessed value should equate to market value.

Reality: While most states support the concept that assessed value approximate estimated market value, this often is not the case. Examples include when interior remodeling has occurred and the assessor is unaware of the improvements, or when properties in the vicinity have not been reassessed for an extended period.

Myth: The appraised value of a property will vary, depending upon whether the appraisal is conducted for the buyer or the seller.

Reality: The appraiser has no vested interest in the outcome of the appraisal and should render services with independence, objectivity and impartiality – no matter for whom the appraisal is conducted.

Myth: Market value should approximate replacement cost.

Reality: Market value is based on what a willing buyer likely would pay a willing seller for a particular property, with neither being under pressure to buy or sell. Replacement cost is the dollar amount required to reconstruct a property in-kind.

Myth: In a robust economy – when the sales prices of homes in a given area are reported to be rising by a particular percentage – the value of individual properties in the area can be expected to appreciate by that same percentage.

Reality: Value appreciation of a specific property must be determined on an individualized basis, factoring in data on comparable properties and other relevant considerations. This is true in good times as well as bad.

Myth: You generally can tell what a property is worth simply by looking at the outside.

Reality: Property value is determined by a number of factors, including location, condition, improvements, amenities, and market trends.