Understanding the Concept of Residential Property Appraisal
When it comes to dealing with the process of buying a property, what stands crucial is its appraisal. If we talk about a residential property, its appraisal would simply mean its market value. To be more precise, it is the probable sales price that would be offered in the competitive and open real estate market. When a buyer decides to purchase a property to keep it for mortgage security, he usually asks the lender to produce an appraisal report. Based on this report, the lender gets an assurance about the amount of money for which he will be selling the property. So, a real estate appraisal matters a lot for not only the lender but also the buyer.
As a matter of fact, there are many who mistake a CMA or Comparative Market Analysis with an appraisal. When a sales report is prepared based on the facts added to the multiple listing services, it is called the CMA. Whereas, appraisals are reports that are prepared by qualified appraisers. In other words, if you want to know in brief as to what is an appraisal, it is the valuation report, which is considered by lenders for ensuring whether or not he should lend the money. Besides, there are also people who confuse appraisal with a home inspection. Checking appliances, plumbing, outlets, ensuring heating and cooling systems etc. are the key duties of the home inspectors. With this information, the buyer decides to move to the property. Appraiser, on the other hand, is only concerned with property valuation.
Appraisers have state licenses which they get after completion of licensing coursework as well as internship hours. They should not have any sort of connection with anyone, not even financial, in regard to the transaction. In other words, an appraiser is an objective third party. There are certain instances where the buyer makes a payment for the appraisal during loan application. The appraisal fee is often added to the statement made during settlement. Now, the big question is how a residential appraisal report would look like.
While dealing with a residential property, one must be fully aware of how a residential appraisal report would look like. In other words, one must know what are the facts included in such reports. First, these reports are based on the on-site evaluation by the appraiser. Moreover, sales data is also evaluated and added to such reports. So, here are some of the crucial facts that are included in the residential appraisal report:
- Particulars about the property to be appraised
- Subsequent comparative data of some similar properties
- An overall evaluation of the real estate market relevant to the area
- All such statements relating to issues that might prove to be bad and harmful for the property’s value. A property’s poor access is one of the common issues.
- Representation of flawed characteristics like a weak foundation
- An estimate of the property’s average sales time.
- The type of locality where the property rests. It is to be stated whether it is in a stand-alone or development acreage.
Methods of Residential Appraisal
For residential properties, there are usually two common appraisal methods:
- Cost Approach
- Sales Comparison Approach
As far as the Cost Approach is concerned, it is applicable for new properties. Here, one comes to know about the building costs. The appraiser here will estimate the cost of replacing the structure in case it gets destroyed.
On the other hand, the Sales Comparison approach takes into consideration the estimates in relation to the market value of a property when compared with similar properties sold in the area. The properties that have already been used are known as comparables. Since two properties cannot be exactly similar, the appraiser must take the similar properties into comparison with the subject property. This is done by making alterations so as to keep their features in tune with the property to be appraised. The resulting figure would reflect the price at which every comparable home would have been sold for, provided it had similar components of the property to be appraised.
What you need to be aware is of a low appraisal. In that case, you can always talk to an expert residential property appraiser and get some wise tips. Just stay focused, keep a sharp mind, be wise and proceed accordingly. With time, you are sure to uncover more and more facts about appraisals and gain a better understanding of it.
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