Property Investment Advice

Home Appraisals Explained

In real estate, determining the market value of the property is very important. Sellers, buyers and even lenders commonly use this in making financial decisions. Sellers may lever their prices for selling from the market value. Buyers may also use this value as a determining factor for the affordability of the property. Lenders use the market value as the determining factor for the security of their investment. 

But the question is how can one determine the market value of the property. The best way to do this is through Home Appraisal. 

Home appraisal has been one of the most sought after transactions in real estate. The quality of its results can help determine the full potential or use of the property. 

To get the best appraisals, one must be able to hire a licensed and experienced appraiser, who has full knowledge about the local real estate market. Once hired, they can inspect the place and record the features of the property and make observations as to its condition. 

Market value is then determined by using 3 approaches. They are sales, cost and income approach. 

Sales Approach 

This is one method for valuing residential properties. The sales approach is easier to do because it makes use of comparable (otherwise known as comps) for the valuation. The appraiser would pick out 3 or 4 properties with similar features and situated within the same locality or neighborhood. These properties are picked out from the list of recently sold homes (within the past 6 months). 

Cost Approach 

Newly constructed homes, commercial properties and properties with less qualified comps are most valuated effectively through this method. Cost approach makes use of formulas that take into account the dollar value of replacements if the property becomes defective or destructed. The value of the land will also be considered in the calculation, as well as building depreciation. 

Income Approach 

This is another popular method to valuate commercial properties. This involves the process of capitalization because valuation will be based on the property's ability to generate income.

Home appraisals are not home inspection. Although the activities are similar but the essence of doing this transaction differ in many ways. Home appraisal is for the determination of the true value of the property. On the other hand, home inspection involves testing and checking of structures, as well as formulation of recommendations on how to fix the problem. An appraiser purely focuses on the value of the property and he or she does not have the expertise to recommend repairs for a particular defect. 

Obtaining an appraisal may be expensive but certainly, it is worth having. However, consumers are forced to pay for it because it is one of the lender's requirements for mortgage application.

The lenders normally own appraisal reports in mortgage. You can obtain a copy of the report if you make a request in writing. For people, who are not applying for a loan, you can obtain the appraisal independently. One piece of advice: make sure you go for reputable companies to do the job for you. Cheap services usually do not give you quality reports. If you want to make the best decisions in real estate, always determine the real market value of the property derived from quality appraisals.