Appraising Properties: An Introduction To Real Estate Valuation
Topics: real estate appraisals, investing, foreclosures, mortgage, lending
Real estate appraisals are an opinion or estimate of the property value. There are many factors in determining the value of a property, so it is best to leave this area to someone that is qualified to value real property, determining the values of a property is one of the first steps in buying and selling real estate.
Determining who is qualified is relatively easy to do several organizations hold members to standards that other local organizations do not. The Appraisal Institute and The National Society of Real Estate Appraisers. These organizations hold their members to very high standards. Classes and certifications are part of a continuing education requirement. The ethical standards that members are required to stick to are high and therefore, using an appraiser that is a member of one or both of these organizations is a great way to find a qualified and knowledgeable appraiser to value your properties.
Just about all lenders, both private and institutional will require an appraisal on a property prior to funding a new mortgage loan. Appraisals attempt to justify the loan amount the individual needs to purchase the home; this usually takes place once the buyer and seller have agreed on a final contract price.
Once the contract is ready and property valuation ordered, the appraiser, usually given the contract price, the appraiser proceeds with the valuation of the property. Appraisals serve several other important needs as well, such as, determining a reasonable offering price, estate tax and planning, land valuations and for tax and insurance purposes.
Once the valuation is completed, an “Appraisal Report” that details the results of the procedure are sent to the bank or lender for review, you can also request a copy too, you paid for it. These reports presented in a number of ways, such as an oral, written, letter or even as a form that is required by the lender. Residential appraisals are generally sent using a standard “Uniform Residential Appraisal Form”; this makes it easier for lenders to review the valuation reports quickly.
The Uniform Residential Appraisal Form contains areas such as; Neighborhood, Improvements, Interior, Site and the Valuation Section that includes the method of appraisal that was used, Market Data Analysis that allows the appraiser to compare similar properties in the area. Photos are usually required in an appraisal and an addendum is attached showing various views of the area, maps and identifying information about the property’s location.
The appraiser’s duty is to determine the “fair market value” of a property; valuations completed in several different ways. The first is “Cost Approach” this determines the replacement value of the land and structures at today’s rates, less depreciation. Price Method is the primary approach to estimate property value. This method analyzes recent selling prices of properties in the area using comparables to value properties. In many cases, appraisers use more then one method to determine the property value.
The valuation, quite commonly, came in at the exact amount of the contact price; this benefits the lender, normally the one that decides which appraiser to use, by doing this the appraisers reward would be more business from the lender.
Appraisals are merely estimations of the property value, and do not determine the current market rate. Market rates indicated through inspections that guarantee the conditions, or imply warranties regarding the condition of the property. Appraisals are not foolproof, while somewhat complex; the true value depends on the condition of the property, current market conditions and other factors.
Realtor’s opinion may not accurately reflect the current marketplace, so order an appraisal, in order to determine the accurate value of a property in the current market. There are specialized, trained individuals for residential property and one that specialize in commercial property and raw land. Using a recommended appraiser, in good standing, in the trade organizations will yield the best results when determining a valuation of a property.
Appraisals are valuable reports that will keep you from over-paying for a property. Sometimes appraisals will come in low; in this case, you need to find out why. Maybe the appraiser missed something about the property.
Experienced investors agree that the price you pay for an appraisal is well worth in the valuable information. Most appraisals are $200 – $400 for a good report, others may charge less, but you may not get as detailed report.
Thomas Bladecki is the author and can provide additional information about foreclosures and the current real estate markets visit www.home-foreclosure-help.org for more info.
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