Real Estate Appraisal Facts
The Real Estate Appraisal determines the Market Value of the Subject Property. Market Value is the sale price if the property is sold in an open market. An appraisal is required by lenders when securing the mortgage. The lender wants to ensure their investment in the property is properly valued in case of default on the loan.
The Appraiser is licensed by the state after completing many hours of courses and an internship working with a certified appraiser. The appraiser is a third party neutral vendor used when acquiring a home loan. They are not biased for the Buyer or the Seller.
Methods of Residential Appraisals:
- Sales Comparison or Market Approach – The appraiser compares the subject property to similar properties that have recently sold in the immediate area.
- Cost Approach – The appraiser estimates the cost to replace the home I if it was destroyed. This method is most useful for homes less than two years old.
The appraiser not only inspects the Subject Property but also looks at the neighborhood and surrounding area for other factors that might affect the value of the property.
Negative effects on value:
- Heavy traffic on the street not suitable for families
- Any environmental problems, ie… coal ash ponds in area effecting well water
- Hog or chicken farm which has an offensive odor
- Junk yards, heavy industrial plants, major airports are examples
Positive effect on value:
- Location, water front, water view, golf course, mountain scenic view
- Gated neighborhoods
- Close to major shopping and business centers
- Close to desirable education facilities.
If the appraisal comes back lower than the sale price you can usually renegotiate the contract.
Good advice purchasing a home is:
Stay in the middle of the market, in other words don’t purchase the biggest most expense home in the neighborhood. The same applies to the smallest least expensive home in the neighborhood.
Remember an appraisal is determined by Market Value, comparing the subject property to other similar homes.