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Terms and General Information
Understanding an Appraisal Report
Understanding an Appraisal Report
An appraisal is an estimate of the value of a specific property. The
appraisal report is a detailed description of the process the appraiser used
to reach the estimated value he placed on the property.
Appraisals can be delivered as an oral report, a letter report, a form or a
narrative report. Narrative reports are the most complete appraisal format.
A typical narrative report will contain the following sections and
information:
An introduction which is used to establish the appraisal's purpose and
to state any limitations that may exist
A factual descriptions section which may include: photographic
identification of the property; area, city, neighborhood and location data;
zoning and taxes data; site data; description of improvements; and history
A data analysis section that includes the appraiser's opinions items in
this section may include: market analysis; highest and best use of the land,
as though vacant; highest and best use of the property, as improved; land
value; sales comparison approach; income capitalization approach; cost
approach; and reconciliation of the value indications to a final value
estimate
An addendum that contains a detailed legal description; detailed
statistical data; leases or lease summaries; and the appraiser's
qualifications
Reading an Appraisal Report
Each part of an appraisal report should have a distinct purpose and should
add to your understanding of the basis for the value determination.
Sections should build on one another and point to the same conclusion.
Information used to make adjustments and reconciliation in the last portions
of the report should be drawn from earlier sections.
At Appraisal Works, we specialize in delivering high-quality appraisals that
are easy to understand. We will also answer your questions, provide relevant
recommendations, and work with you to resolve any issues that may arise in
the quickest, most convenient manner possible.
Source: Barron's Real Estate Handbook, Third Edition
Common Home Appraisal-related Terms
Appraisal - The determination of property value based on recent sales
information of similar properties.
Appraiser Someone who is professionally licensed to determine the value of
a home.
Assessment - Determining a property's value for the purpose of taxation.
Appreciation - Increases in property value due to fluctuations in the
market, inflation, etc.
Asset - Valuable items, encumbered or not, owned by a person, corporation,
or entity.
Broker - An individual in the business of assisting in arranging funding or
negotiating contracts for a client but who does not loan the money himself.
Brokers usually charge a fee or receive a commission for their services.
Certificate of Reasonable Value (CRV) - An appraisal that has been performed
on a property that is being paid for with a VA loan. After the property has
been appraised, the Veterans Administration issues a CRV.
Deed - A legal document which affects the transfer of ownership of real
estate from the seller to the buyer.
Depreciation - In real estate and mortgage terms, the decline in the
property value.
Equity - The difference between the current market value of a property and
the principal balance of all outstanding loans.
Home Inspection - A thorough assessment by a professional regarding the
structural and mechanical condition of a property.
Lender - The bank, mortgage company, or mortgage broker offering the loan.
Many institutions only "originate" loans and then resell the obligation to
third parties.
Loan - The principal, or amount of total borrowed money, that is repaid with
interest.
Loan-To-Value Ratio - The relationship between the amount of the mortgage
loan and the appraised value of the property expressed as a percentage. A
LTV ratio of 90 means that a borrower is borrowing 90% of the value of the
property and paying 10% as a down payment. For purchases, the value of the
property is assumed to be the purchase price, for refinances the value is
determined by an appraisal.
Mortgage - A legal document that pledges property to a creditor for the
repayment of the loan, and is the term used to describe the loan itself.
Some states use the term First Trust Deeds to refer to mortgage loans.
Mortgagee - The lender in a mortgage agreement.
Mortgage Banker - A financial intermediary that originates or funds loans,
collects payments, inspects the property, and forecloses if necessary.
Mortgage Insurance - Insurance that covers the lender against losses
incurred as a result of a default on a home loan. This is usually required
on all loans that have a loan-to-value higher than 80%. Mortgages that have
an 80% LTV that do not require mortgage insurance have higher interest
rates. The lenders then pay the mortgage insurance themselves. In addition,
FHA loans and some first-time homebuyer programs require mortgage insurance
regardless of the loan-to-value.
Owner's Title Policy - A policy protecting the buyer for the amount of the
purchase price in the event of a future title dispute.
Private Mortgage Insurance (PMI) -
Paid by a borrower to protect the lender in case of default. PMI is
typically charged to the borrower when the Loan-to-Value Ratio is greater
than 80%.
Purchase Agreement - A written contract signed by the buyer and seller
stating the terms and conditions under which a property will be sold.
Realtor - A real estate agent, broker, or associate that holds an active
membership in a local real estate board that is affiliated with the National
Association of Realtors.
Refinancing - The process of paying off one loan with the proceeds from a
new loan, using the same property as security.
Second Mortgage - A mortgage that has a lien position subordinate to the
first mortgage.
Survey - A drawing or map that shows the precise legal boundaries of a
property, the location of improvements, easements, rights of way,
encroachments, and other physical features.
Zoning - The right of a community, under its police power, to dictate the
use of property within its boundaries.
About Private Mortgage Insurance
Private mortgage insurance (PMI) is a type of insurance that helps protect
mortgage companies against losses due to foreclosure. This protection is
provided by private mortgage insurance companies and allows mortgage
companies to accept lower down payments than would normally be allowed.
PMI also enables mortgage companies to grant loans that would otherwise be
considered too risky to be purchased by third party investors like the
Federal National Mortgage Association (FNMA) and the Federal Home Loan
Mortgage Corporation (FHLMC).
The ability to sell loans to these investors is critical to maintaining
mortgage market liquidity, which in turn, allows mortgage companies to
continue originating new loans.
Americans Earning Less, Saving Less
Why is PMI needed? Relative to the growth in home prices over the last
quarter century, Americans are earning less and, as a result, saving less.
This means many families today are being forced to wait longer than their
parents and grandparents before buying their first home.
One way to reduce this wait is through PMI and many families are taking
advantage of it. Recent government statistics show that one of every two
homebuyers obtained a low down payment loan; and many of them used private
mortgage insurance (PMI) to realize their homeownership dream.
The Importance of Recognizing When to Get Rid of PMI
Most lenders require Private Mortgage Insurance (PMI) if the borrower has
less than 20% equity in a home. One of the more difficult things for most
homeowners is determining when their home equity has risen above the 20
percent point. Failure to recognize this significant event will leave you
paying a higher mortgage payment than you need to be paying.
In fact, with appreciation in your home value, you might already have more
than 20% equity and not know it! The best way to determine the value of your
home is through an appraisal. While the Homeowners Protection Act of 1998
requires that lenders drop PMI payments when the loan to value ratio
conditions have been met, most require an appraisal to support the
homeowner's assertions of the value increase.
Getting an appraisal now and dropping your PMI payments will significantly
reduce your monthly mortgage payments and save you thousands of dollars
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