BACK TO ARTICLES INDEX

June 2, 2002

Real Issues - Appraisals, what are they and who needs to have them?

by Mike Bordelon - Real Estate Appraiser

The appraisers' typical clients are individuals involved in buying and selling of real estate, such as investors, who seek the knowledge to purchase or sell holdings; builders and developers who need assistance with feasibility studies, absorption periods and Highest and Best Use studies to develop properties to reach a profitable return.

The most common demandsfor an appraiser are lending institutions for the purpose of accepting real estate as loan security. Individuals also use appraisers even when paying cash for property to assure the purchase prices are equitable.

The State of Louisiana has two certifications for the appraisal industry. They are residential certification and general certification.

A certified residential appraiser is recognized as a competent appraiser for single family and small income producing property such as duplexes up to four-plexes. Other categories are vacant sites.

The general certified appraiser is recognized to perform appraisals of residential as well as other real estate in Louisiana with some limitations.

A typical appraisal request is for the appraiser to establish a market value. In order to complete the assignment, the appraiser must address the minimum guidelines set by the state and by any professional organization which they are affiliated.

With all the technology, newspapers, real estate guides and real estate magazines, many people are very knowledgeable about market activity and aware of transactions and value trends in their area. However, most of the information given are listings and offerings and rarely do we see closed sales with disclosures of terms, physical characteristics of the properties and any assistance given the buyers at closing.

Many times in conversation, information about properties that have sold are vague and can even be misleading. Therefore, it is wise to seek the advice of the real estate professional prior to making decisions of selling or purchasing real estate.

A few hints about seeking appraisal services are to call several appraisers and ask questions such as:

How long have you been appraising real estate? Do you have a certification or designation? Are you familiar with my neighborhood? In addition, you may ask for a client list if the purpose of the appraisal is for securing a mortgage loan.

When inquiring about appraisal services it is also important to realize the appraisers' assignment is basically to estimate the market value of the identified property as of a specific date. It should also be known that for the most part the appraiser is not an inspector. Although any apparant adverse conditions should be reported and considered in the evaluation process, hidden defects, such as mechanical problems or termites are not typically reported due to the lack of knowledge of the condition.

There are service companies that offer such home inspections for the owners' peace of mid and estimated costs to cure any deficiencies that may be discovered by the inspector.

The valuation of real estate begins with the inspection of the property and identifying the property rights to be valued. A majority of the time the "rights" are fee simple or total ownership.

An appraiser also must identify the purpose of the appraisal, as well as the intended use, such as, to secure a mortgage, property settlement, donation, etc.

There are three basic approaches used in the valuation process:

• Consider property's competitiveness in the market.
• Estimate cost less any depreciation that may apply.
• Determine property's income or income potential.

Residential appraisals usually consider only the cost and sales comparison approcahes to value. Unless, the house is tenant occupied, a mortgage lender usually does not require an income approach.

Contrary to popular belief, the heated total square foot method is not the acceptable approach to deriving the estimated market value. All units of comparison should be considered, i.e. porches, patios, pools, additional storage areas as well as overall quality and many other variables.

After the report is completed and delivered do not hesitate to call the appraiser if you have any questions or comments or want to offer any additional information that would assist the appraiser.

Appraisers, like REALTORS, are in the real estate business to assist owners with the valuation and trading of real estate. It is always good advice to seek competent advice and professional services when needed.

BACK TO ARTICLES INDEX