Appraisals by John Nicholson & Associates has answers to "Frequently Asked Questions"

Appraisals by John Nicholson & Associates is ready to answer any inquiries you might have about appraisals or real estate in Lafayette and Tippecanoe County. Feel free to contact us today.

What is an appraisal?
What does an appraiser do?
What are the reasons I would need a real estate appraisal?
What is the difference between an appraisal and a home inspection?
My agent performed a CMA for me. Is that the same as an appraisal?
What does the appraisal report contain?
Once the assignment is done, what assurance is there that the value indicated is trustworthy?
What does it mean for an appraiser to be licensed?
Who are an appraiser's customers?
Where does an appraiser get the data used to estimate values in Tippecanoe County or other areas?
What can a full appraisal do for me?
What exactly is PMI and how can I get rid of it?
How do I get ready for the appraiser?
How does an appraiser define "Market Value"?
Does the appraisal belong to the bank or the consumer?
How can I get the most ROI out of home improvements?

What is an appraisal?   (List of questions)

The method of writing an appraisal consists of an estimation which forms an opinion of value. The real estate appraiser will use a number of "approaches," typically three, to conclude the estimation of market value. One of the methods is the Cost Approach - which is how much it would cost to replace the improvements, less physical deterioration and other factors, then adding the land value. Another of the methods is the Sales Comparison Approach - which concerns discovering a comparable analysis to other similar nearby properties which have recently sold. Being the most common approach, the Sales Comparison Approach tends to be the most accurate and best indicator of market value for a property. The third approach is the Income Approach, which is of most importance in appraising income producing properties - it deals with estimating what an investor would pay based on the capital generated by the property.

What does an appraiser do?   (List of questions)

An appraiser forumlates a professional, unbiased determination of market value, to be used in making real estate transactions. Appraisers present their expert analysis in appraisal reports.

What are the reasons I would need a real estate appraisal?   (List of questions)

There are a lot of reasons to purchase an appraisal with the usual reason being real estate and mortgage transactions. A few other reasons for obtaining an appraisal report include:
  • To get a loan.
  • To reduce your tax burden.
  • To help a homeowner realize if they owe less than 80% of their home's value and remove PMI.
  • To challenge inflated property taxes.
  • If you need to take care of an estate.
  • To give you a negotiating tool when purchasing a home.
  • To find the most probable property value when putting your home on the market.
  • To ensure parties are provided just compensation in eminient domain cases.
  • Government agencies such as the IRS require an appraisal on every home.
  • If you are ever involved in a civil case.
Click here for a more detailed explanation of the process dealing with getting an appraisal.

What is the difference between an appraisal and a home inspection?   (List of questions)

Appraisers do not do complete house inspections and are not home inspectors. A third-party home inspector will judge the structure of the home, from the top to the foundation. Usually, a home inspection report will evaluate the amenities and the necessities of the home: air conditioning (weather permitting), electrical services, the condition of the heating system, the plumbing; then the structural capacity of the home such as the attic, accessible insulation, walls, floors, ceilings, windows, then the foundation, basement and other visible structures.

My agent performed a CMA for me. Is that the same as an appraisal?   (List of questions)

To be blunt, it's like comparing sugar and saccharin. The CMA uses market trends to generate most of their business. The appraisal is reliant on similar definite comparable sales. Area and architectural values are also precedent in an appraisal. A CMA delivers a "ball park figure." Delivering a defensible and careful analysis, an appraisal will give a clear opinion of value.

But the most significant factor is who's doing the report. A CMA is written by a real estate agent who may or may not have a true grasp of the market or valuation concepts. A certified, Indiana licensed professional who bases their livelihood on valuing properties in and around Tippecanoe County is behind the appraisal. Moreover, the appraiser is an independent voice, with no vested interest in the value conclusion, unlike the real estate agent, whose income is tied to the price of the home.

What does the appraisal report contain?   (List of questions)

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, one will customarily see the following:
  • The client and other intended users.
  • How the appraisal is supposed to be used.
  • The reason for the appraisal.
  • The type of value reported and a definition of the value reported.
  • The effective date of the appraisal.(Sometimes this is in the past or maybe the future for new construction!)
  • Characteristics of the property that have a bearing on the value, including: location, physical attributes, legal attributes, economic attributes, the property rights in question, and non-real estate items included in the appraisal, such as personal property, trade fixtures and even intangible considerations.
  • All known easements, restrictions, encumbrances, leases, reservations, covenants, contracts, declarations, special assessments, ordinances, and other items of a similar nature.
  • Division of interest, such as fractional interest, physical segment and partial holding.
  • What was involved in the activity of completing the job.
For a more in depth view of the work that goes into an appraisal report click here: Sample Appraisal Report

Once the assignment is done, what assurance is there that the value indicated is trustworthy?   (List of questions)

In communicating an appraisal report, each appraiser must ensure the following:
  • That the information analysis utilized in the appraisal was appropriate.

  • That substantial errors of omission or commission were not committed individually or collectively.

  • That appraisal services were not conducted in a careless or negligent fashion.

  • The final appraisal report was understandable, legitimate and conclusive.
To become a state licensed appraiser, there are strenuous education requirements as well as real world experience that must be logged. Plus, appraisers must obey a meticulous industry code of ethics and respect national standards of practice for real estate appraisal. The guidelines for developing an appraisal and documenting its results are insured by enforcement of the Uniform Standards of Professional Appraisal Practice (USPAP).

   (List of questions) Licensing and certification takes coursework, tests and practical experience. Once an appraiser is licensed, he or she must then take continuing education courses in order to keep the license up to date. To see the specific requirements for any state click here.

Who are an appraiser's customers?   (List of questions)

Mortgage lenders are an appraiser's most likely client, using their services to ensure a home involved in a mortgage transaction is enough to cover a loan balance in the case of default. Attorneys and CPAs also hire appraisers for divorce and estate settlements.

Where does an appraiser get the data used to estimate values in Tippecanoe County or other areas?   (List of questions)

One of the main things an appraiser does is to gather property data. Data can be described as either Specific or General. Specific data is gathered from the home itself; Location, condition, amenities, size and other specifics are gathered by the appraiser while on site.

General data is gathered from a variety of places. To research recently sold homes to be used as "comps", we typically use the local Multiple Listing Service. To double-check actual sales prices, we look at items in the assessor's office and other public documents that are usually online nowadays. Appraisers often have to report when a property is in a flood zone, so 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 past experience in doing assignments for other properties in the same market.

What can a full appraisal do for me?   (List of questions)

If you're making any kind of financial decision and the value of your home matters, you'll want to hire a licensed appraiser. When selling your home, an appraisal assists you in setting the most appropriate price. If you're buying, it makes sure you don't overpay. For those settling an estate or divorce, an appraisal from Appraisals by John Nicholson & Associates is the best way to ensure assets are split up fairly. A home is often the single, largest financial asset anybody owns. Without knowing its real value, wise financial decisions are impossible.

What exactly is PMI and how can I get rid of it?   (List of questions)

PMI is an acronym for Private Mortgage Insurance. It takes care of the lender if a borrower doesn't pay on the loan and the market price of the house is less than what the borrower still owes on the loan. You can have your PMI dropped once you've achieved 20% equity in your home through appreciation and principal payments.

Does your monthly house payment include a fee for PMI?Call Appraisals by John Nicholson & Associates today at 765-428-8838 or send us an e-mail. A new appraisal could save you thousands.

How do I get ready for the appraiser?   (List of questions)

The first step in most appraisals is the home inspection. 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 features. Inside, make sure it is clutter free and that we can get to things like furnaces and water heaters. On the outside, trim any landscaping so we can be free to get an accurate measurement of exterior walls.

To help expedite our work plus ensure a more accurate report, try if possible to have the following items:
  • Any information on the purchase of the property for the last three years.
  • List of personal property to be sold with the home.
  • Any inspection reports, or other recent reports for termites, EIFS (synthetic stucco) wall systems, septic systems and your well.
  • A copy of the current listing agreement and broker's data sheet and Purchase Agreement if a sale is "pending".
  • Most recent real estate tax bill from Tippecanoe and or legal description of the property.

How does an appraiser define "Market Value"?   (List of questions)

In real estate appraising, Market Value (as opposed to Fair Market Value) is commonly defined as:

"The most probable price (in terms of money) which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: the buyer and seller are typically motivated; both parties are well informed or well advised, and acting in what they consider their best interests; a reasonable time is allowed for exposure in the open market; payment is made in terms of cash in United States dollars or in terms of financial arrangements comparable thereto; and the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale."

Does the appraisal belong to the bank or the consumer?   (List of questions)

For mortgage transactions, the lender requests the appraisal, either directly or through a third party. Even though it's the buyer that eventually pays for the report, the lender is the intended user. 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.

It's different when it's the homeowner hiring the appraiser for things outside securing a mortgage. In these scenarios, the appraiser may state 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 do whatever they want with the appraisal.

How can I get the most ROI out of home improvements?   (List of questions)

The added value of a particular amenity truly depends on the local market. For example, installing an inline humidifier could be nice in arid regions, but completely useless near the coast!

No matter where you go, however, renovating a kitchen is almost always a safe investment. 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 were second, returning 85%. Adding bedrooms and baths can also increase the value of your home (when done well) as long as your home doesn't then become atypical for your neighborhood in terms of size.