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Ken Colley & Associates Inc. has answers to "Frequently Asked Questions"

Ken Colley & Associates Inc. is willing to address any questions you might have about appraisals or real estate in Sebastian County. Feel free to contact us today.

Describe an appraisal
What does an appraiser do?
What would cause me to require a real estate appraisal?
How is an appraiser different than a home inspector?
My agent performed a CMA for me. Is that the same as an appraisal?
What can I expect to see in my appraisal report?
After completing the report, what guarantee is there that the value indicated is valid?
How are appraisers certified?
Who are an appraiser's customers?
Where does an appraiser get the data used to estimate values in Sebastian County or other areas?
How can a licensed appraiser help me?
What exactly is PMI and how can I get rid of it?
Does the appraiser need anything from me in advance?
How does an appraiser define "Market Value"?
Once complete, who actually owns the appraisal report?
Are some home improvements more worthwhile than others?

Describe an appraisal   (See list of FAQ's)

The method of performing an appraisal report consists of an inspection which leads to an opinion of value. This opinion or estimate is concluded using a formal process that typically uses three "common approaches to value". One of the methods is the Cost Approach - which is what it would cost to replace the improvements, less physical deterioration and other factors, plus the land value. Another of the processes is the Sales Comparison Approach - which deals with making a comparable analysis to other similar properties within a close vicinity which have recently sold. Usually, the Sales Comparison Approach is the most accurate indicator of market value of a house. The Income Approach is primarily used for figuring out the market value of income-producing properties based on what an investor would pay based on the amount of capital a property produce.

What does an appraiser do?   (See list of FAQ's)

An appraiser offers a fair and credible opinion of market value, to be used in making real estate transactions. Appraisers present their conclusions in appraisal reports.

What would cause me to require a real estate appraisal?   (See list of FAQ's)

There are a lot of reasons to obtain an appraisal from Ken Colley & Associates Inc. with the usual reason being real estate and mortgage transactions. Some other reasons for obtaining an report include:
  • If you are applying for a loan.
  • To reduce your tax burden.
  • To demonstrate a homeowner's acquired equity and remove insurance.
  • To challenge inflated property taxes.
  • To settle an estate.
  • To offer you an edge when purchasing a home.
  • To find an honest sales price when listing your home.
  • 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.
For a more extensive description of the appraisal process click here.

How is an appraiser different than a home inspector?   (See list of FAQ's)

The appraiser is not a home inspector and does not do a full home inspection. An inspection is a third-party investigation of the available structure and systems of a property, from the top to the bottom. Usually, a home inspection report will discuss the amenities and the necessities of the home: air conditioning (weather permitting), electrical functions, the condition of the heating system, the plumbing; then the structural integrity of the home such as the attic, visible 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?   (See list of FAQ's)

Frankly, it's like comparing Shakespeare to reality TV. What the CMA relies upon are superficial trends. Appraisals use comparable sales which are valid resources. The appraisal report will also contain location and construction costs. All a CMA does is generate a "ball park figure." Delivering a defensible and careful analysis, an appraisal will give a clear opinion of value.

But the biggest difference is the person creating the report. Real estate agents, who may not have a complete understanding of valuation methods or the entire market, write CMA's. The appraisal is created by a licensed, certified professional who has made a career out of valuing properties. Likewise, the agent has something at stake since they get a commission based on the property's selling price - their commission - whereas the appraiser is bound by a code of ethics to accept a flat fee for work they perform, regardless of their value conclusion.

What can I expect to see in my appraisal report?   (See list of FAQ's)

Every report should reflect a credible value opinion and must clearly state the following:
  • Who engaged the appraiser and other intended users.
  • How the appraisal is supposed to be used.
  • The purpose of the assignment.
  • The type of value reported and a definition of that value.
  • The effective date of the value opinion.
  • Characteristics of the property that have a bearing on the value, including: location, physical characteristics, legal attributes, economic attributes, the property rights in question, and non-real estate items included in the valuation, such as personal property, items that are more or less permanently installed and even intangible factors.
  • Any known easements, restrictions, encumbrances, leases, reservations, covenants, contracts, declarations, special assessments, ordinances, and the like.
  • Division of interest, such as fractional interest, physical segment and partial holding.
  • The scope of work used to complete the job.
For a more detailed view of what goes into an appraisal report click here: Sample Appraisal Report

After completing the report, what guarantee is there that the value indicated is valid?   (See list of FAQ's)

In communicating an appraisal report, each appraiser must make sure of the following:
  • The appraisal contained a suitable analysis of the data.

  • Whether individually or collectively, there were no crucial errors contained in the appraisal, nor any material details left out.

  • That appraisal services were provided in a careful and cognizant fashion.

  • The final appraisal report was transparent, sound and defensible.
There are intense classroom and on the job experience requirements that must be adhered to in order to get an appraisal license in Arkansas. In addition, appraisers must stick to a stringent industry code of ethics and comply with 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).

   (See list of FAQ's) Licensing and certification takes classroom study, tests and real world experience. Once licensed, he or she is required to take continuing education courses so that the license doesn't expire. To see the specific requirements for any state click here.

Who are an appraiser's customers?   (See list of FAQ's)

Most of the time, appraisers are employed by lenders to estimate the value of real estate involved in a loan transaction. Attorneys and CPAs also retain the services of appraisers for asset division and estate settlements.

Where does an appraiser get the data used to estimate values in Sebastian County or other areas?   (See list of FAQ's)

Gathering information is one of the primary occupations of an appraiser. Data can be divided into Specific or General. Specific data is collected from the property itself; Location, condition, amenities, size and other specifics are gathered by the appraiser while on site.

General data is gathered from a number of sources. Local Multiple Listing Services (MLS) provide information on recently sold homes that could be used as comparables. Tax records and other courthouse documents verify actual sales prices in a market. Appraisers routinely need to report when a property lies in a flood zone, and that information is retrieved from a FEMA data outlet such as a la mode's InterFlood product.

And most importantly, the appraiser assimilates general data from his or her collective knowledge gained from creating appraisals for other properties in the same market.

How can a licensed appraiser help me?   (See list of FAQ's)

Any time the value of your home or other real property is being used to make a significant financial decision, an appraisal helps. If you're selling your house, an appraisal will help you determine the most appropriate price. If you're buying, it makes sure you don't overpay. If you're engaged in an estate settlement or divorce, it ensures that property is divided 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?   (See list of FAQ's)

PMI is an acronym for Private Mortgage Insurance. It covers the lender in case a borrower doesn't pay on the loan and the market price of the home is less than the loan balance. Once you reach the point where your home's equity plus the amount you've paid is at least 20% of your loan balance, you can have your PMI dropped.

The amount you keep from getting rid of your PMI pays for the appraisal in a matter of months. Nobody is more qualified than Ken Colley & Associates Inc. when it comes to analyzing real estate appreciation in Fort Smith and Sebastian County. Contact us today.

Does the appraiser need anything from me in advance?   (See list of FAQ's)

We begin with an inspection of the home. 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 amenities. On the home's interior, pick up any clutter and make sure we can get to things like furnaces and water heaters. On the outside, trim any bushes so we can be free to get an accurate measurement of exterior walls.

To help expedite our work as well as ensure a more accurate report, try if possible to have the following items:
  • Written property agreements, such as a maintenance agreement for a shared driveway.
  • A list of any personal property that is part of the home and you intend to be sold with the home, such as an oven, or a washer and dryer, if applicable.
  • Information on "Homeowners Associations" or condominium covenants and fees.
  • A list of any major home improvements and upgrades, the amount of their purchase and date of their installation (for example, the addition of Insulation or roof repairs) and permit confirmation (if available).
  • Most recent real estate tax bill from Sebastian and or legal description of the property.

How does an appraiser define "Market Value"?   (See list of FAQ's)

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."

Once complete, who actually owns the appraisal report?   (See list of FAQ's)

For mortgage transactions, the lender orders 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 certainly entitled to a copy of the appraisal - it's usually bundled with all the other closing documents - but is not entitled to use the report for any other purpose without permission from the lender.

This rule doesn't apply when a home owner hires an appraiser directly. In these cases, the appraiser may stipulate the purpose of the appraisal; for PMI removal, or estate planning or tax challenges, for example. If not stated otherwise, the home owner can do whatever they want with the appraisal.

Are some home improvements more worthwhile than others?   (See list of FAQ's)

A home's location - what city it is in and even what part of that city - is key to this popular question. For example, if you're in a neigborhood of small to medium priced homes, a media room may not be something people in that price range want

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 are right up there with kitchens, yielding 85%. Adding bedrooms and baths can also boost the value of your home as long as your home doesn't then become an oddball for your neighborhood in terms of size.