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The Appraisal Helps To Understand Your Real Estate Value

07_The_Appraisal-editedIf you are planning to buy or sell a residential property, the first step you should take is to determine the value of your property. Appraisal is an activity that is carried out to establish the market value of your real estate property. This appraisal will help you form realistic expectations regarding the price you can expect to get for your house or estimate how much you need to shell out for that lovely bungalow of your dreams.

Once the appraisal gets completed, you can know the likely price that your property is about to fetch once it is offered in both open and competitive real estate markets. Appraising the value of your property is also useful when you decide to approach for a loan. Once you ask your lender to consider your real estate property as a security for your loan, your lender will require appraisal. It is quite natural for the lender to be reasonably satisfied that your property is sellable for at least the amount of money that you will be borrowing.

Please do not confuse a Comparative Market Analysis (CMA) with the appraisal process. CMA is an activity carried out by real estate agents to determine a realistic asking price. Agents experienced in the trade often come very close to the appraisal value with their CMAs. However, in the appraisal procedure, the appraiser digs deeper and is the only valuation report that your banker will consider once you apply for a loan.

Now you will naturally want to know whom to approach for the appraisal. Always remember, that the licensed appraisers are the only competent ones for carrying out the appraisal job. Appraisers complete coursework and stipulated internship hours to get their licenses. The internship period familiarizes them with the real estate work. The lender might depute an appraiser on its payroll or appoint an independent appraiser. Kindly ensure that your lender is comfortable with the appraiser you are about to hire. Else, your appraisal will be subjected to review by the lender once more.

Don't confuse appraisers to be home inspectors. The appraisers do not test construction materials, check your chimney or inspect your rooftop. You should not depend upon appraisers to know about the health of your real estate property.

Your property, which is going to be appraised, is called the "subject property". Your appraiser will submit a Residential Appraisal Report against fee. The Residential Appraisal Report is a detailed document. However, you should know a few things about it. The report contains details of the subject property along with a comparative analysis of three similar properties. It also contains an overall view of the real estate market in the area. Any negative aspect about your property will also be highlighted. Inadequate entrance space can be one such aspect. Other mentionable aspects in the appraisal report will be serious flaws (if any), the type of area where the property falls in, average sales time estimates etc.

The next thing you should be a little bit familiar about is the common residential appraisal methods. There are two common methods for the purpose: Sales Comparison Approach and Cost Approach.

Under the Sales Comparison Approach, the appraiser tries to estimate the property's market by comparing it to the similar properties that have been already sold in the area. The other properties used for the comparison purpose are called comparables or comps in short. As no two properties are exactly alike, the appraiser will make necessary paperwork adjustments to the comps. This activity will ensure that the comps and the subject property are now on the same platform for carrying out the comparative analysis. The result of the calculation will show the sale value of each comp if it had the same characteristics as the subject property.

Now let's move on to the Cost Approach. This method is more suited for new properties where costs for building are known. The appraiser's task here is to estimate how much it will cost to replace the property once it is destroyed.

After learning about the appraisal methodologies and related terminologies, you might become curious to know about the implications. As already mentioned, if your property appraises lower than the sales price, your loan application might be rejected. There are other hurdles that might bog you down as well. Your lending bank might not like if the estimated time to sell the subject property is longer than the area average. If the appraiser notifies that the entrance to the your property is from a private, shared road, then your banker might ask for the road maintenance agreement signed by everyone who uses the road. This would establish that road maintenance is shared by all interested parties.

Don't get panicky if the entire appraisal procedure turns out be unexpectedly low. There are steps that can be taken to prevent such problems. If the appraisal uncovers other kinds of problems, you should not get panicky either. Usually these problems are trivial and should not give you the headaches. Alternating and fixing the small problems can resolve most issues.--------------------------------------------------------------------------------------------------------
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