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Real Estate Appraisal
About the Author: Lance Williams
Lance Williams who wrote this article is working as a content developer for Mortgagefit.com. He specialises in mortgage and real estate concepts.
The determination of the value of real estate is essential to the economic well being of society. Real estate appraisal is an estimate of the value of property using various methods. An appraisal is determined with one of three approaches, a cost approach, a comparison approach, or an income approach.
Appraisals are very detailed reports, but here are a few things they include:
1. Details about the subject property, along with side-by-side comparisons of three similar properties.
2. A description and evaluation of the overall real estate market in the area.
3. Statements about issues the appraiser feels are harmful to value or resale, such as poor access to the property.
4. Notations about seriously flawed characteristics, such as a crumbling foundation.
5. An estimate of the average sales time for the property.
6. What type of area the home is in (development, stand alone acreage, etc.).
Cost Approach
The cost approach is most useful for new properties, where the costs to build are known. The appraiser estimates how much it would cost to replace the structure if it were destroyed.
Your personal approval is accomplished early in the loan process, but final loan commitment usually hinges on a satisfactory appraisal. The bank wants to be sure its investment is covered in case you default on the loan.
Sales Comparison Approach - The appraiser estimates a subject market value of property by comparing it to similar properties that have sold in the area. The properties used are called comparables.
No two properties are exactly alike, so the appraiser must compare the comps to the subject property, making paperwork adjustments to the comps in order to make their features more in-line with the property of the subject. The result is a figure that shows what each comp would have sold for if it had the same components as the subject.
An appraisal helps to establish a property's market valuethe likely sales price it would bring if offered in an open and competitive real estate market. Therefore it should be done properly and with due considerations.
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