Appraising Your Home - How its Done and Why its Necessary
An appraisal of a home is an estimate or opinion which is based on supportable evidence and approved methods done by a state licensed or certified professional appraiser. He uses three different approaches to the appraisal process according to what type of property he is appraising. The appraisal report will typically include a description of the property, the appraisers’ opinion of the properties’ condition, and its’ probable monetary value on the open market. In a Federally related transaction, which is one in that a federal institution (such as a bank) is involved in the sale of a residential property valued at $250,000 or above must have a professional appraisal report. A property valued less that that amount is exempt.
The three different approaches that the appraiser uses are called the sales comparison approach, the cost approach and the income capitalization process. For our purposes here, we will concentrate on the sales comparison approach, because generally this is the most reliable one used when appraising single family residences.
In the sales comparison approach, the appraiser uses the “principle of substitution”. This is carried out by finding three or more properties that have sold in the last several months that are similar to the subject property, and also are located fairly close in distance to the subject property. He will then take into consideration any dissimilar features between the properties, and add and subtract these features in the comparable houses. Some of these adjustments could be from physical features (anything about the house or other buildings that are different from the subject property), off site influences (location to schools, shopping hospitals, good or bad neighborhood etc.) and the buyer-seller motivation and financing terms of the comparable house. Another important piece of information the appraiser will take into account is the time from the date of the sale of the comparable house. The appraiser will go through this process with each comparable house. By gathering this information, he will soon be able to assign a value to the subject property that is the adjusted sales price of the comparable houses that are most like the subject.
This is just basically in a nutshell how your house is appraised. But why do you need to spend the money on an appraisal? Well, for one example, many lenders won’t lend money to a buyer unless the house is appraised by a professional, licensed appraiser no matter what the house is valued at. If you’re going to sell your house, you surely would want to know what the true value is so you can set a good price! Also this would be one less step to do before closing takes place. Professional appraisal reports are also used to determine the house’s insurance value, and to determine property loses due to fire, storm damage, earthquake, tornado or other natural disasters. It’s also used to assess the property for taxes and to estimate remodeling costs.
All of these are excellent reasons to have your home appraised, but the most important one is to learn the true value of your home, especially if you are considering selling in the near future. You’ve put a lot of money into your home. You would be wise to put a little bit more into it by having it appraised!
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