A real estate appraisal is the process of determining the value of a newly built property, the resale value of a residential property, or evaluating properties for investment purposes. The appraisal is a report containing many crucial details about the subject property and creates comparisons to similar ones in the neighborhood.
How Do Real Estate Appraisals Work?
When an individual applies for a mortgage, the lender will require the property to be appraised by one of their certified appraisers. The cost, normally around $300 or higher depending on the property, is usually paid by the buyer outside of closing.
The appraiser will start the appraisal with a thorough physical inspection of the property inside and out. Also, they will look at courthouse records, recent real estate reports, and other numerous sources for more information on the subject property.
There are two different methods for conducting appraisals for residences:
The sales comparison approach is based upon comparing the subject property with a few similar homes that have been recently sold in the neighborhood. These are often referred to as the comparables. Analysis will focus on comparing specific bits of information, such as the square footage, style, age, lot size, and various other features of the homes.
The cost approach is mostly used for homes that have just been built and based upon the reproduction costs. This analysis will involve the appraiser estimating the cost to cover replacement of the property if it were to be destroyed. Land value and depreciation can also be added in to determine the value.
What is Included in an Appraisal Report?
The real estate appraisal report will contain:
- An explanation of the method through which the appraiser ended up with the property’s value
- Description of the size and condition of the house, along with any improvements that have been made recently and permanent fixtures
- Accounts of any serious structural problems that were found through the inspection
- Information about the surrounding neighborhood and recent market trends in the area
- Comparisons with other residences surrounding the subject property that will support the market value appraised
- Photographs, maps, or sketches of the subject property and its land
Overall, a real estate appraisal is more than just another cost or hassle added to the buying process. It is protection that will help everyone make informed decisions, so that a fair and reasonable price for market value can be formed.