Appraisal Basics

Real Estate Appraisal

Appraisal refers to a document that offers an estimate of the fair market value of a property. An appraisal specifies a property’s market value. An appraiser performs the appraisal. An appraiser is usually a state-licensed individual who is trained to make use of the existing data for a home valuation.

The property is taken into consideration during an appraisal. Factors like the location of the property, amenities, and the accurate market value of similar contemporary properties are considered.

The Need To Get A Home Appraisal

An appraisal is an essential step in the process of a home purchase or refinance. Usually, lenders do not lend on a property without an appraisal. A home appraisal is needed for the following reasons:

  • To know the value of the house during the home selling
  • To content huge property taxes
  • To settle and finalize for a divorce
  • For the settlement of an estate
  • To make use of it in the form of a negotiation tool during the selling process
  • To establish the costs of replacement
  • To refinance
  • To safeguard your rights in the case of an eminent domain

Home Appraisal Methods

During the home appraisal process, appraisers make use of three common approaches. They are:

1. Sales Comparison Approach:

This approach involves the appraiser identifying a few local comparable properties that have been sold recently. Ideally, the properties picked for the purpose of comparison must be within reach of ½ mile radius from the subject property and have been sold within the past 180 days. The homes picked for the comparison purpose must be identical to the subject property in size, rooms, and layout. The appraiser now makes a comparison between the sold properties and the subject property. Factors like square footage, property age, number of rooms and bathrooms, view, property condition, and lot size are taken into consideration during the comparison.

2. Cost Approach:

This approach involves using a formula to get a fair value of the property. The formula for the cost approach is:

Property Value= Land Value + Cost (New- Accumulated Depreciation)

3. Income Approach:

This type of approach involves capitalization of the potential net income of the subject property to get the property value. The method is fit for income-producing properties. Capitalization refers to the conversion of a future income stream into a present value.