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For your 3rd comparable , did your appraiser comment on why he used a comparable that was over 1.5 miles away when the first two are a couple hundred feet away and the remaining comps are within the same neighborhood? Thanks
Hey Everyone I know about this work I have experience in same field Property Appraiser I'm Handle a 4 clients The clients from USA I doing a work through Remotely. Give a chance me Am Doing work in Total Software
On the bottom of page 3 under the cost approach it does typically cite the value of the land and the structure, however I wouldn't put a lot of stock in that. Lenders don't ever use the cost approach for determining value and so it's not super accurate.
If there was a huge disparity, like $20k, because none of the houses being compared have a detached garage nor 100 foot driveway leading to it like mine would you say that is a problem. Or say my land being 3 times the square footage as the other properties?
Hello I have worked in the appraisal management business for 20 years. If there is an adjustment for the garage and land then that is fine. If not, there should be some comments in the addendum. Driveway length generally does not impact value.
I am an appraiser in Brazil, here by our rule, 3 comparisons is not enough to reach the foundation and the minimum required precision. only as a last resort.
When I pay for a service and get a professional opinion I would think more than one would be a welcomed approach. Though it is not. Also, the fact you have to define if the appraisal is for purchase or refi makes me think there will be different values for each. My personal experience with appraisals I have found to be very frustrating and not so dependable. I think the real estate industry needs a full refresh with removing all the unethical loop holes.
Here's why the appraiser doesn't develop multiple approaches. Nine times out of ten, it's going to be the sales comparison approach. They look at similar properties that sold recently and arrive at a value. Adding more approaches to the mix would actually throw off the value in most cases. If your home is older than 20 years old, the appraiser has to rely on outdated information from cost manuals in order to reconstruct the replacement cost of the home -- and then he or she has to depreciate that value of those 20 year-old improvements and add the land value. When a house is too old, then, the cost approach has too many confounding variables to be useful. In order to use the income approach, the appraiser needs enough rental data in an area to find a gross rent multiplier (GRM), which is used in conjunction with the monthly rent to arrive at a final estimated market value. If there are only six single family homes rented in the past three years in your area, that number is unsupported; there's just no data.
Also, I can 100% guarantee appraisers aren't coming in with different values for purchase and refi contracts unless they're dumb as shit. Hope I helped!
the approaches to value are decided based on producing credible assignment results. The sales comparison is the most accurate approach to value although the cost approach is sometimes developed and weighted in valuing a new home as there is no depreciation, which is why it is less credible in an older home. I do typically develop and rarely put weight on the cost approach. It is almost always my decision and many of my clients require it as an assignment condition. The income approach is applicable in rental 1-4-unit properties and the GRM is developed although the sales comparison typically is the best indicator of value. The difference between sale or refi is to indicate if a contract is to be evaluated and the client sets the use and user of the report. It is impossible to make a determination of any report without having all of that information. it may be a refi and maybe the lending is the client whom wishes to have a retrospective opinion for a lending decision or salvage value instead of market value. we just do not know. I made some free videos if you wish to learn more. addyappraisals.com
Effective age is the age based on the condition of the property improvement, and not necessarily the actual age, so say if the actual age of the structure is 20 years, but has been maintained fairly well since then, an appraiser could adopt an effective age of say 10 years, which would mean less depreciation on the improvement value.
Effective age has its roots in mortgage lending. It is the appraiser's opinion of the observed condition of the property. If the property has been updated then the property would suffer from less depreciation and the effective age would be less than its physical age. This is a requirement for lending purposes as the mortgage amortization period has to be greater than the remaining economic life of the improvements. This is economic life and not physical life. You could have a property that is only ten years old but the street has been re-zoned for hi-rise apartments. Then the appraiser would increase the effective age and depreciation to reflect that the property is not at its highest and best use with the majority of value situated in the land component. And then you have the example of a ten year old home having say 90 percent depreciation. This is a mortgage requirement and the appraiser would have to follow the lenders lending guidelines on how the land component is to be valued. If it is for residential mortgage lending purposes then the lender's guidelines may prevent the appraiser from valuing the land at its highest and best use and would they value the land as residential. This would be addressed in the report to the lender as a hypothetical condition imposed by the lender on the appraisal. As a general rule if a hypothetical condition has been invoked - no one but the lender gets to see or use the appraisal report as this could be grounds for a law suit if the report was to be used by a third party for a different intended use. Like a divorce.
The appraiser calculated how much the house cost to build and added the land value to that amount. The "indicated value by cost approach" is the current market value of your home -- the amount that a typical, knowledgeable buyer would pay for your home as long as it's exposed to the market for a reasonable amount of time. Edit: the cost approach doesn’t really consider exposure time. See below, but it’s used to support market value.
@@phillips8366 Your first sentence is correct. Your second one is wrong...... WRONG---"The "indicated value by cost approach" is the current market value of your home -- the amount that a typical, knowledgeable buyer would pay for your home as long as it's exposed to the market for a reasonable amount of time." The sentence above should be ""The "indicated value by sales comparison" is the current market value of your home -- the amount that a typical, knowledgeable buyer would pay for your home as long as it's exposed to the market for a reasonable amount of time." The cost approach is the value of the land plus the replacement cost of the improvements (cost to build the house) minus depreciation. It has nothing to do with buyers or market exposure.
@@mattp8335 appraisers determine market value. I provided the definition of market value. When you’re valuing the land for the cost approach, you’re determining the market value of the land, are you not? You’re then using the cost of improvements to come up with a current market value opinion. Also, we’re answering questions for a layman. There’s no need to be aggressive.
@@phillips8366 @Phillip S Again, cost approach has nothing to do with market exposure and what a buyer will pay. The cost approach is used to support the sales comparison approach on new/newer construction. It is also used because Fannie Mae and other lenders require it so they know what fire insurance should cost so it has been adequately covered to protect their investment in case of a total loss. 99% of the time the appraiser will say in the report something like: although the cost approach was performed due to the age/condition of the property it carries no weight as the sales comparison approach is most reliable.
Too bad you chose such a simple report to review. On such a simple report a quick cross check to the appraisers conclusion is to calculate the sale price per square foot of each comparable sale and relate those rates to the property. I'm a little surprised not to see any adjustments for lot size since comparable sale 3 has twice the lot size as the property being appraised. I suspect the appraiser is also combining depreciation and main floor square footage together in one adjustment as they are using a common adjustment rate of $45 per square foot in their main floor adjustment. So they are incorporating depreciation/diminished utility in this single adjustment and I strongly suspect they are using a rate significantly less than the cost to build a new townhome. Unless you believe that the cost to build a new town home with an unfinished basement is 1,367 square feet @ $45 per square foot = $61,515 which would make the underlying land have a residual value of about $150,000. That's quite an unusual Land to Building ratio. Still possible - but unusual. That may be a red flag to a problem with the lot size adjustment as there is no adjustment or explanation of why the appraiser is not adjusting for a lot that is twice the size of the property being appraised when the underlying land value is $150,000. There is nothing wrong in the way they have done the adjustments. There are no set rules on how those adjustments may to be made. The appraiser is using a method that works well for them relative to their years of experience. And since the comparable sales are almost near identical homes to the subject, the variation between them on a gross selling price basis is going to be small. The advantage to using a lower rate is that the appraisal report has lower gross and net adjustments which the lender erroneously interprets as being a mark of a better appraisal report. The disadvantage to this method is if the property being appraised is significantly different from the comparable sales used and the appraiser ends up concluding outside of the sale price range. That's when the problems happen and the property may be under or over appraised. The adjustment process is a highly subjective process based on the appraisers experience. Using a Sale Price per Square Foot rate is an objective process. The numbers are what they are in an objective approach. In your example the rates ranged between $162 to $176 per square foot of main floor area. Generally the Sale Price per Square foot declines as the main floor area increases which is an economic principle known as diminishing returns. That would put the subject property which has a smaller main floor area than the comparable sales at the mid to higher end of the range but for illustrative purposes in order to provide a cross check to conclusion I would use the average of the three comparable sales at around $169 per square foot x 1,307 Square feet which is about $221,000 (rounded) using an objective approach. The appraised value at $220,00 is within 5 percent so the appraiser provided a very good opinion of value. I would say if you want to review an appraisers opinion of value I would use this objective approach. If there is a large discrepancy then you may ask the appraiser to review their analysis or have another appraisal performed. Nothing is carved in stone when it comes to an appraisal. Appraisers are human and humans make errors. And errors only become mistakes when they are not addressed.
You kept it simple and went over all the important items. 🙏🏾
Hey Everyone I know about this work I have experience in same field Property Appraiser I'm Handle a 4 clients The clients from USA I doing a work through Remotely. Give a chance me Am Doing work in Total Software
For your 3rd comparable , did your appraiser comment on why he used a comparable that was over 1.5 miles away when the first two are a couple hundred feet away and the remaining comps are within the same neighborhood? Thanks
Because it can be used as a comp
Hey Everyone I know about this work I have experience in same field Property Appraiser I'm Handle a 4 clients The clients from USA I doing a work through Remotely. Give a chance me Am Doing work in Total Software
Does the appraisal report show a break up of the appraised value i.e, the value of land and the value of structure??
On the bottom of page 3 under the cost approach it does typically cite the value of the land and the structure, however I wouldn't put a lot of stock in that. Lenders don't ever use the cost approach for determining value and so it's not super accurate.
Thank you so much , This helped me a lot to understand about the Appraisal.
Very helpful. Thank you so much!
(Next to ‘By Sales Comparison’) What is cost approach ?
Very helpful thank you now I know what to look for.
Thank you so much! This was very helpful 👍👍
Great video, very informative.
Thanks for this!
If there was a huge disparity, like $20k, because none of the houses being compared have a detached garage nor 100 foot driveway leading to it like mine would you say that is a problem. Or say my land being 3 times the square footage as the other properties?
Hello I have worked in the appraisal management business for 20 years. If there is an adjustment for the garage and land then that is fine. If not, there should be some comments in the addendum. Driveway length generally does not impact value.
Thanks man. It helped a lot.
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I am an appraiser in Brazil, here by our rule, 3 comparisons is not enough to reach the foundation and the minimum required precision. only as a last resort.
When I pay for a service and get a professional opinion I would think more than one would be a welcomed approach. Though it is not. Also, the fact you have to define if the appraisal is for purchase or refi makes me think there will be different values for each. My personal experience with appraisals I have found to be very frustrating and not so dependable. I think the real estate industry needs a full refresh with removing all the unethical loop holes.
Here's why the appraiser doesn't develop multiple approaches. Nine times out of ten, it's going to be the sales comparison approach. They look at similar properties that sold recently and arrive at a value. Adding more approaches to the mix would actually throw off the value in most cases. If your home is older than 20 years old, the appraiser has to rely on outdated information from cost manuals in order to reconstruct the replacement cost of the home -- and then he or she has to depreciate that value of those 20 year-old improvements and add the land value. When a house is too old, then, the cost approach has too many confounding variables to be useful. In order to use the income approach, the appraiser needs enough rental data in an area to find a gross rent multiplier (GRM), which is used in conjunction with the monthly rent to arrive at a final estimated market value. If there are only six single family homes rented in the past three years in your area, that number is unsupported; there's just no data.
Also, I can 100% guarantee appraisers aren't coming in with different values for purchase and refi contracts unless they're dumb as shit. Hope I helped!
the approaches to value are decided based on producing credible assignment results. The sales comparison is the most accurate approach to value although the cost approach is sometimes developed and weighted in valuing a new home as there is no depreciation, which is why it is less credible in an older home. I do typically develop and rarely put weight on the cost approach. It is almost always my decision and many of my clients require it as an assignment condition. The income approach is applicable in rental 1-4-unit properties and the GRM is developed although the sales comparison typically is the best indicator of value. The difference between sale or refi is to indicate if a contract is to be evaluated and the client sets the use and user of the report. It is impossible to make a determination of any report without having all of that information. it may be a refi and maybe the lending is the client whom wishes to have a retrospective opinion for a lending decision or salvage value instead of market value. we just do not know. I made some free videos if you wish to learn more. addyappraisals.com
Thank you!
Ty for this information 🙌🏽
Thank you so much!! This helped me out quite a bit!
Very informative! Thanks
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Hi, if value as per sales approach is 5mn and as per income approach is 4.5mn. Which value you will consider and why?
Always the sales approach
Thank you for sharing!
It would be helpful, if you could explain CU scores as well.
Explained perfect thank you
Thanks for the info !!!
What does "Effective Age (Yrs)" mean in the 2nd page of the appraisal under General Description?
Effective age is the age based on the condition of the property improvement, and not necessarily the actual age, so say if the actual age of the structure is 20 years, but has been maintained fairly well since then, an appraiser could adopt an effective age of say 10 years, which would mean less depreciation on the improvement value.
Effective age has its roots in mortgage lending. It is the appraiser's opinion of the observed condition of the property. If the property has been updated then the property would suffer from less depreciation and the effective age would be less than its physical age. This is a requirement for lending purposes as the mortgage amortization period has to be greater than the remaining economic life of the improvements. This is economic life and not physical life. You could have a property that is only ten years old but the street has been re-zoned for hi-rise apartments. Then the appraiser would increase the effective age and depreciation to reflect that the property is not at its highest and best use with the majority of value situated in the land component. And then you have the example of a ten year old home having say 90 percent depreciation. This is a mortgage requirement and the appraiser would have to follow the lenders lending guidelines on how the land component is to be valued. If it is for residential mortgage lending purposes then the lender's guidelines may prevent the appraiser from valuing the land at its highest and best use and would they value the land as residential. This would be addressed in the report to the lender as a hypothetical condition imposed by the lender on the appraisal. As a general rule if a hypothetical condition has been invoked - no one but the lender gets to see or use the appraisal report as this could be grounds for a law suit if the report was to be used by a third party for a different intended use. Like a divorce.
Why would you pick a town home as an example? Not a free standing house
👍👍
Thanks, this was great. What is the "Indicated Value By Cost Approach?"
The appraiser calculated how much the house cost to build and added the land value to that amount. The "indicated value by cost approach" is the current market value of your home -- the amount that a typical, knowledgeable buyer would pay for your home as long as it's exposed to the market for a reasonable amount of time.
Edit: the cost approach doesn’t really consider exposure time. See below, but it’s used to support market value.
@@phillips8366 Your first sentence is correct. Your second one is wrong......
WRONG---"The "indicated value by cost approach" is the current market value of your home -- the amount that a typical, knowledgeable buyer would pay for your home as long as it's exposed to the market for a reasonable amount of time."
The sentence above should be ""The "indicated value by sales comparison" is the current market value of your home -- the amount that a typical, knowledgeable buyer would pay for your home as long as it's exposed to the market for a reasonable amount of time."
The cost approach is the value of the land plus the replacement cost of the improvements (cost to build the house) minus depreciation. It has nothing to do with buyers or market exposure.
@@mattp8335 appraisers determine market value. I provided the definition of market value. When you’re valuing the land for the cost approach, you’re determining the market value of the land, are you not? You’re then using the cost of improvements to come up with a current market value opinion. Also, we’re answering questions for a layman. There’s no need to be aggressive.
@@mattp8335 don’t get me wrong: I KINDA get what you’re saying, but I think it’s purely semantic since it’s still a market value opinion.
@@phillips8366 @Phillip S Again, cost approach has nothing to do with market exposure and what a buyer will pay. The cost approach is used to support the sales comparison approach on new/newer construction. It is also used because Fannie Mae and other lenders require it so they know what fire insurance should cost so it has been adequately covered to protect their investment in case of a total loss.
99% of the time the appraiser will say in the report something like: although the cost approach was performed due to the age/condition of the property it carries no weight as the sales comparison approach is most reliable.
Good Vid..Thank you help me a lot...
Very helpful!
Genuine question: Why do we compare properties?
To find the actual value of the propert +/- the comparable features like pools, exta storage, etc.
i like your office outside view
Thanks so much!
Types of appraisal can you explain
Too bad you chose such a simple report to review. On such a simple report a quick cross check to the appraisers conclusion is to calculate the sale price per square foot of each comparable sale and relate those rates to the property. I'm a little surprised not to see any adjustments for lot size since comparable sale 3 has twice the lot size as the property being appraised. I suspect the appraiser is also combining depreciation and main floor square footage together in one adjustment as they are using a common adjustment rate of $45 per square foot in their main floor adjustment. So they are incorporating depreciation/diminished utility in this single adjustment and I strongly suspect they are using a rate significantly less than the cost to build a new townhome. Unless you believe that the cost to build a new town home with an unfinished basement is 1,367 square feet @ $45 per square foot = $61,515 which would make the underlying land have a residual value of about $150,000. That's quite an unusual Land to Building ratio. Still possible - but unusual. That may be a red flag to a problem with the lot size adjustment as there is no adjustment or explanation of why the appraiser is not adjusting for a lot that is twice the size of the property being appraised when the underlying land value is $150,000.
There is nothing wrong in the way they have done the adjustments. There are no set rules on how those adjustments may to be made. The appraiser is using a method that works well for them relative to their years of experience. And since the comparable sales are almost near identical homes to the subject, the variation between them on a gross selling price basis is going to be small. The advantage to using a lower rate is that the appraisal report has lower gross and net adjustments which the lender erroneously interprets as being a mark of a better appraisal report.
The disadvantage to this method is if the property being appraised is significantly different from the comparable sales used and the appraiser ends up concluding outside of the sale price range. That's when the problems happen and the property may be under or over appraised.
The adjustment process is a highly subjective process based on the appraisers experience. Using a Sale Price per Square Foot rate is an objective process. The numbers are what they are in an objective approach. In your example the rates ranged between $162 to $176 per square foot of main floor area. Generally the Sale Price per Square foot declines as the main floor area increases which is an economic principle known as diminishing returns. That would put the subject property which has a smaller main floor area than the comparable sales at the mid to higher end of the range but for illustrative purposes in order to provide a cross check to conclusion I would use the average of the three comparable sales at around $169 per square foot x 1,307 Square feet which is about $221,000 (rounded) using an objective approach. The appraised value at $220,00 is within 5 percent so the appraiser provided a very good opinion of value.
I would say if you want to review an appraisers opinion of value I would use this objective approach. If there is a large discrepancy then you may ask the appraiser to review their analysis or have another appraisal performed. Nothing is carved in stone when it comes to an appraisal. Appraisers are human and humans make errors. And errors only become mistakes when they are not addressed.
I had to pay for mine
Same
Every borrower pays for the appraisal one way or another. Either up front, or in the closing costs.
What about the sale approach and cost approach?
this is comprehensive
Who else is doing continuing education? 😅
Thank you! Very informative.