What is a Real Estate Appraisal?

What is an Appraisal?

After staking out various properties on the market for months, you’ve finally found your dream home. The asking price is $350,000 – an amount for which your bank already has you pre-approved. Now, how can you be sure the house is really worth the listed amount? That is the underlying question of the appraisal process and it’s also a crucial part of the financial information you’ll inevitably need to purchase a home at a favorable price.

As you may know, an appraisal is essentially just a written assessment of a property’s market value. The price, estimated by an appraiser, is determined by an analysis of recent sales for similar homes in the area, in addition to the property’s physical condition, land value and local market.

One important consideration when properly appraising a home is to research the appropriate market area. This method is called the sales comparison, or market approach, and compares three or more similar properties in the area that have recently sold. The appraiser will analyze specific components of the properties, including square footage, style, age, lot size and other amenities, including fireplaces and garages.

The cost approach is another tactic an appraiser will use to establish a home’s value. This strategy looks at what it would cost to replace or reproduce the building, taking into account issues like deductions for physical damage or deterioration as well as the totality of materials and engineering necessary to recreate a structure alike or identical to the original. This amount is then added to the land value to arrive at a entire home value.

When it comes to hiring an appraiser, it’s critical to take their knowledge, professional judgement and experience into careful account. In effect, an appraiser is going to be the primary person who informs you to either disregard or embrace a potential future home.

A good appraiser will be familiar with the market area in question and will also consider various local factors contributing to the overall market conditions of a property. They will also be certified and licensed in their field, come with great credentials and also plenty of experience. Various problems may arise if you don’t select a capable appraiser including, but not limited to, higher or lower estimations and inaccuracies about the condition or size of the property. You could potentially end up spending way more than the home actually warrants, or end up getting a lot less for a property, when selling.

On the buy side, the appraisal procedure is, once again, one of the most important aspects of the process. Without accurate and credible appraisals, investment returns face the risk of leaving precious profit on the table. Seeking the most knowledgeable and proficient specialists will ensure the best returns for your investment capital.