Want to know the basics of property appraisal when it comes to buying a house or selling your home?
This post is all about what you should know about property appraisal before you begin the process.
Are you planning to either buy a house or maybe sell yours? If yes, then you must have heard about property appraisals before.
However, what they really are and their significance remains unclear to most people.
The post will explain the basics of property appraisal, as well as the aspects that should be considered, and it’s significance in the process.
This way you will be equipped with appropriate knowledge on what to expect from the appraisal process.
This post is all about the basics of property appraisal when it comes to buying a house or selling your house.
What Is a Property Appraisal?
There are several definitions of property appraisal. Fannie Mae’s definition is here.
In short, when it pertains to buying or selling a house, the property appraisal is an objective, unbiased opinion of value that is reflective of the current market.
A qualified appraiser determines the market value by considering different aspects.
Usually, those appraisals take place during real estate transactions to ensure an accurate market value.
Buyers may overpay or sellers may undervalue their property in the absence of an appropriate assessment, potentially resulting in financial loss.
In figuring out what a property is really worth makes the appraiser’s job essential.
Why Are Property Appraisals Important?
When buying and selling property, there several important reasons for appraisals. Here are just 3 reasons:
- Fair Market Value: Property appraisals before listing or offering to purchase will assist in determining a fair price. Then, the buyer and seller can negotiate and make informed decisions.
- Mortgage Approval: In most cases, lenders ask for a property appraisal before they can issue mortgages to ensure that the amount of money requested is not more than the value of the property.
- Refinancing: If a homeowner wants to refinance their mortgage, for example, the lender may re-evaluate the property.
In short, property appraisals are vital to the real estate process, providing a foundation for financial decisions and legal agreements.
The Appraisal Process: Step by Step
The property appraisal process consists of the following steps:
- On-Site Inspection: The appraiser visits the property to assess its size and condition, as well as other important or unique factors.
- Research: The appraiser collects data concerning the property to be appraised, which includes its location, and recent sales of houses within that vicinity.
- Sales Comparison: It involves finding similarities and differences between the subject house and the properties that have been sold recently.
- Other Approaches to Value: Including the Income Approach and/or the Cost Approach if applicable.
- Final Report: In this detailed document, the appraiser will provide an opinion about the value of the subject property, how he or she arrived there, and evidence supporting the property appraisal.
Factors That Affect Property Value
Several factors affect the appraised value of a property include:
- Location: The proximity to schools, parks, and amenities can have a large effect on the value of a property.
- Condition: Properties that are well maintained often have higher values than those that are in disrepair.
- Size: The size and layout of a property are essential factors to consider when judging a property’s value. For example, a 3 bedroom house quite often receives a higher value than a 2 bedroom house because more potential buyers can find their needs satisfied in them.
- Market Trends: The property appraisal is influenced by current market trends regarding real estate. High demand alongside low inventory is usually what increases prices.
- Unique Features: Special features, such as a pool, in-law suite, or custom finishes, can enhance a property’s appeal and potentially increase its appraised value.
Common Property Appraisal Methods
Appraisers have a variety of distinct processes to use in assessing a property’s market value. Here are the 3 approaches to value:
- Sales Comparison Approach: This involves comparing the subject property with other similar houses that have been bought or sold in in market area.
- Cost Approach: A technique that estimates how much it would cost to replace or reproduce the subject property by using another one, and considers factors such as depreciation, land value and entrepreneurial incentive.
- Income Approach: Most frequently used for investment properties or commercial buildings, this approach derives the market value from possible future earnings.
Tips for a Successful Property Appraisal
Here are some tips you can follow to ensure a seamless appraisal:
- Your property should be ready. Ensure that your property is tidy and well maintained. Make small repairs that may affect its appearance or upkeep. (Appraisers do not care about your stuff – but it makes it easier to do our job if we are not stepping over things.)
- Complete Documentation. Make a list of recent remodeling or repairs to your property.
- Be Transparent. Tell the appraiser about challenges or unique attributes that might alter the price of the house.
- Investigate Comparable Properties: Browse for the prices for similar houses around your area, and let the appraiser know what you found.
Common Questions Concerning Property Appraisals
When it comes to buying or selling a house these questions often come up during the appraisal process:
Q: How long does an appraisal take?
A: Depending on how busy an appraiser is and how complicated a property is, it can take about a week to complete the whole process.
Q: Who pays for the appraisal?
A: The buyer usually pays for this as part of closing costs, but sometimes they can negotiate with sellers. This will depend on the market climate (buyers market vs sellers market)
Q: What happens when property’s value is appraised less than expected?
A: When appraisals are lower than what buyers offer, negotiations between seller and buyer for a reduced price might need to be carried out, or purchasers may put in more money to meet the difference.
Learn More About Property Appraisal
If you are dealing with any real estate transaction, understanding property appraisal is vital.
This will empower you to go through the home buying or selling process with more ease.
More information about understanding property appraisal can be found in our various articles concerning market trends and how to get ready for an appraisal.
Also, a comprehensive overview of the appraisal process is provided by the Appraisal Foundation via the National Association of Realtors in this Comprehensive Guide to Residential Appraisal.
