Real Estate Appraisal - Do Your Own
Real estate appraisal is a critical process in real estate transactions. It is the practice of estimating the value of a property by a qualified professional. This practice is essential to protect the interests of buyers, sellers, mortgage lenders, and insurance companies.
Real estate appraisal is a fundamental aspect of buying or selling a property, and it helps in decision-making for all parties involved. As a property owner, understanding how to do your property appraisals is crucial. Not only will it help you make the right choices when selling, buying or refinancing, it will also enable you to understand the value of your property, and help you avoid making costly mistakes.
Why is real estate appraisal important?
There are several reasons why real estate appraisal is important. Firstly, it helps buyers and sellers determine the correct market value of a property. The market value is the price at which a willing and able buyer will pay, and a willing and able seller will accept, for a property in an open and competitive market.
Secondly, real estate appraisal helps mortgage lenders assess the value of the property they are lending on. The lender will generally not lend more than the value of the property, which is why real estate appraisal is necessary. In addition, insurance companies also use real estate appraisal to determine the insurable value of a property.
Finally, real estate appraisal helps in resolving disputes in legal matters such as divorce, probate and taxation. When dividing assets, determining inheritance or appealing property taxes, it is important to know the true value of a property. Appraisals can provide solid evidence in these situations.
What are the different types of appraisals?
There are three primary types of appraisals used in the real estate industry: market value, cost approach, and income approach.
-Market value appraisal: This type of appraisal estimates the value of a property based on comparable sales in the local market. The appraiser will review recent sale prices of similar properties in the area, the condition and age of the property, and any unique features that may affect the value.
-Cost approach appraisal: This method takes into account the cost of building a similar structure today, minus depreciation, plus the value of land. For example, if a house was built in the 1960s, the cost approach would consider the cost to construct that same house today and then factor in the depreciation over the years since it was built.
-Income approach appraisal: This approach is usually used for commercial properties and multi-family properties, it estimates the value of the property based on its potential income. The appraiser will look at the rental income or earning potential of the property, the operating expenses and the capitalization rate for the area to calculate the value.
What do appraisers look for?
During a property appraisal, an appraiser will analyze and inspect the property to determine its value. Here are some of the things appraisers look for:
- Location: Proximity to amenities such as schools, public transport, shops and recreational facilities.
- Size of the property: The size, including the number of bedrooms, bathrooms, and living spaces, can affect the value of a property.
- Condition of the property: An appraiser will consider the age, condition, and maintenance history of the property. Upgrades and renovations can also affect the value.
- Neighborhood: Evaluating the area in which the property is located can help the appraiser gauge the local market and determine the property's value.
- Comparable sales: The recent sale prices of similar properties in the area are important factors in determining the value of a property.
How to do your own appraisal
If you’re thinking of buying or selling a property or refinancing your mortgage and you want to get a sense of what it might be worth, you can do your own basic appraisal.
1. Do a little research: Check out real estate websites to get an idea of what other properties in your area are selling for, this will help you have an idea of the current market.
2. Check out your house: Take a walk around your property and scrutinize every corner of the house. Evaluate the quality of the finishes, age of the house structure, materials used and note any repairs or upgrades you’ve done.
3. Observe the neighborhood: As mentioned earlier, the location of a property plays a major role in its value. Observe the surroundings, review the proximity to conveniences, parks, shopping centers, schools and potential for future development.
4. Determine square footage: Measure all living spaces and covered areas. Although it won’t provide an accurate value of the property, it helps to have a general idea of the size of the property.
5. Check recent sale prices of similar properties in your area: Take note of recently sold properties similar to yours within your neighborhood.
6. Determine the value of your property: You can determine the value of your property by comparing your property to other recently sold properties with similar features in your area. The sales prices of the comparable properties will guide you in determining the possible worth of your home.
Conclusion
Real estate appraisal is crucial in determining the value of a property, and it’s critical for everyone involved in a real estate transaction. Whether you are buying, selling, refinancing, or simply curious about the value of your property, learning how to appraise your property can be beneficial.
It is important to note that the property market is always changing and a professional appraisal is usually more comprehensive than an amateur appraisal. A professional appraiser can take into consideration any unique factors and closely examine the value indicators, providing a much more accurate appraisal of the property. However, doing your own appraisal can be a good place to start in gauging an estimated value of the property.