My Appraisal Business Has Shifted, Has Yours?
When most people think about real estate appraisals, they often associate them solely with buying or refinancing a home. However, real estate appraisals serve many other essential purposes that extend far beyond these conventional uses.
With the recent slowdown in home purchases, my appraisal business has shifted towards private work, catering to a diverse array of needs outside traditional transactions. I’ve been appraising now for over 30 year and with this experience I would like to shed some light on the diverse and often overlooked applications of real estate appraisals.
Understanding these “non-traditional” uses can help you, or someone you know, make informed decisions and potentially save money in various situations.
The Many Faces of Real Estate Appraisals
Real estate appraisals are required whenever the value of a property needs to be determined. The value might be assessed as of the inspection date or, in some cases, as of a past date.
The latter is known as a retrospective appraisal. Let’s explore some of the key non-traditional uses of real estate appraisals and how they can benefit you.
1. Marketing Appraisals: Setting the Right Price from the Start
What is it?
A marketing appraisal is conducted before a home is listed for sale, either by the owner or a realtor. This is sometimes referred to as a pre-listing appraisal.
How it helps:
- Accurate Pricing: By obtaining an appraisal before listing, you can set a realistic and competitive price for your home. This can attract serious buyers and prevent prolonged market time.
- Smooth Transactions: An accurate appraisal helps ensure that when your home goes under contract, its value won’t become a stumbling block in the sales transaction. This minimizes the risk of deals falling through due to financing issues.
Example Benefits:
A homeowner in Birmingham decided to get a marketing appraisal before listing her house. The owner had recently made some updates and renovations and wanted to make sure they got all of their money back from the investment.
While the improvements increased the value of their home the appraisal revealed that not all improvements give you a 100% return on the investment. If they would have listed their home using that mindset the property would have been overpriced and sat on the market for an extended period of time.
By using the appraisal to price their home to the market, and factoring in the improvements, they were able to price it competitively and sell within a reasonable period of time. Accurate pricing involves more than adding the cost of improvements to the market value of your home. Cost does not always equal value.
2. Tax Appeal Appraisals: Fair Property Tax Assessments
What is it?
Tax appeal appraisals are conducted to challenge the assessed value of a property for tax purposes.
How it helps:
Lower Property Taxes: If your property has been overvalued by the county, you may be paying more in property taxes than necessary. An appraisal can provide evidence to support a lower valuation and reduce your tax burden.
Up-to-Date Valuation: Property values can fluctuate, and unless your home has been recently assessed, the county’s valuation may not reflect current market conditions. In addition, the county may not have accurate physical data on your home, such as the square footage. If they show your home being larger than it actually is it could be assessed too high.
Example Benefits:
A homeowner noticed that his property taxes had increased significantly, despite lower sales of similar neighborhood homes. He ordered a tax appeal appraisal, which showed that his home was overvalued by the county. Armed with this appraisal, he can cofidently argue for a lower assessment and lower taxes.
3. Estate Planning Appraisals: Smooth Property Transfers
What is it?
Estate planning appraisals are typically ordered when property is transferred due to the death of the owner, often for tax or inheritance purposes.
How it helps:
Accurate Estate Valuation: Provides a fair market value of the property at the time of the owner’s death, ensuring accurate estate valuation for tax purposes.
Equitable Distribution: Helps in the fair distribution of property among heirs, preventing potential disputes.
Example Benefits:
When an elderly homeowner passed away, her children needed to determine the value of her estate, which included a family home. The estate planning appraisal provided an accurate valuation, which helped the family settle the estate efficiently and equitably distribute the assets among the heirs.
4. Bankruptcy Appraisals: Navigating Financial Difficulties
What is it?
Bankruptcy appraisals are needed when individuals file for bankruptcy and must provide proof of the value of their assets.
How it helps:
Asset Valuation: Provides a clear and defensible value of real estate assets, which is crucial in both Chapter 7 and Chapter 13 bankruptcy cases.
Retention of Home: In many bankruptcy cases, individuals wish to retain their home. An accurate appraisal can support their case to exclude the home from the liquidation process.
Example Benefits:
A homeowner filing for Chapter 13 bankruptcy needed to demonstrate the value of his home to restructure his debts. The bankruptcy appraisal showed that the home had sufficient equity to support his repayment plan, allowing him to keep his home while addressing his financial obligations.
5. Foreclosure Appraisals: Informed Decision-Making for Lenders
What is it?
Foreclosure appraisals are typically requested by lenders to determine the value of their collateral in the event of a foreclosure or when selling a bank-owned (REO) property.
How it helps:
Collateral Assessment: Enables lenders to assess the value of the property to make informed decisions regarding foreclosure or sale.
Marketability Insights: Provides insights into the marketability and potential sale price of the property, aiding in the decision-making process.
Example Benefits:
A lender needed to evaluate a foreclosed property to decide whether to sell it or keep it as an REO asset. The foreclosure appraisal provided a detailed analysis of the property’s current market value and condition, helping the lender make an informed decision to sell the property promptly.
6. Appraisals for PMI Removal: Eliminating Unnecessary Costs
What is it?
Appraisals for PMI (Private Mortgage Insurance) removal are used to demonstrate that the homeowner’s equity in the property has reached a level where PMI is no longer necessary.
How it helps:
Cost Savings: Once the homeowner’s equity exceeds 20% (this may vary by lender), they can use an appraisal to remove PMI, potentially saving hundreds of dollars annually.
Increased Equity Awareness: Helps homeowners understand their property’s current value and their equity position.
Example Benefits:
A homeowner who had paid down a significant portion of her mortgage and noticed rising property values ordered an appraisal for PMI removal. The appraisal confirmed that her home’s value had increased sufficiently, allowing her to eliminate the PMI and save money on her mortgage payments.
7. Retrospective Appraisals: Accurate Historical Valuations
What is it?
Retrospective appraisals determine the value of a property as of a specific date in the past, rather than its current market value.
How it helps:
Legal and Financial Clarity: Useful in legal disputes, tax issues, or financial matters where the value at a past date is required.
Historical Context: Provides historical context and accurate valuation for cases involving inheritance, estate settlement, or divorce settlements.
Example Benefits:
A client needed the accurate market value of an inherited home that he had sold several years ago. The retrospective appraisal provided the necessary historical value, helping the client to satisfy IRS filing requirements.
Conclusion: The Versatility of Real Estate Appraisals
As you can see, real estate appraisals serve a wide range of purposes beyond the traditional scope of buying or refinancing a home. Whether you are dealing with tax appeals, estate planning, bankruptcy, foreclosure, PMI removal, or need a historical valuation, a professional appraisal can provide the accurate and reliable information you need.
If you find yourself, or someone you know, in any of these situations, consider reaching out for a professional appraisal. With over three decades of experience, I am well-equipped to handle a variety of appraisal needs and provide you with the insights necessary to make informed decisions.
Feel free to contact me with any questions or to discuss how a real estate appraisal can benefit your specific situation. As always, thanks for reading.
Right on. Lots of reasons for private appraisals. I find some needs come and go depending on market conditions too. For instance, not much tax appeal work in my area. Lot of other stuff though. Keep up the great work, Tom.
Thanks, Ryan. Yeah, right now Jefferson county, where Birmingham is located, is having their protest period open for homeowners who disagree with their taxes. That only comes once a year, however, the other non-traditional appraisal work can occur all year. Hope you’re staying busy.
Hey Tom,
Good to hear from you. Very interesting post. I like the way you presented the benefits of our services.
Thanks, Joe. I thought it would be helpful to consumers to know that appraisals are not just for home purchases and refinances. There are many ways we as appraisers can be helpful to homeowners.
Great summary Tom and what many Appraisers and users of Appraisals need to know. With the changing climate in our world, private appraisals are the way to go. This year my business has graduated to 95% personal business. It had been around 80% for the past several years as that has been my market push for many years. I made the decision that as of June, 2024, I will NO Longer be doing appraisals for lenders….That is it. Too many issues out there with lawsuits, the new 1004 UAD form that is pretty complex. I call it a cross between an inspection, a relocation report and an appraisal. Not going to be completing these forms for lenders. I feel a weight lifted off my shoulders not dealing with lenders any longer. Good luck out there I know you will survive the challenges moving forward.
Thanks, Mary. I feel the same way you do. I have not totally shifted to private work but that is my goal. I had the largest percentage of private work last year and this year compared to past years so I am definitely headed in the right direction. I’m glad you are finding success in the transition as well.