Property Appraisal

Find An Appraiser In Your Area

When it comes time to buy or sell a house or other real estate, and available financing and the sale price are at stake, you want to know “What is the property worth?”.

Real estate appraisal, property appraisal, property valuation, or land valuation is the process of valuing "real property".  Real property is any subset of land that has been legally defined, and the improvements to it made by human efforts; any buildings, machinery, wells, dams, ponds, mines, canals, roads, various property rights, and so forth.

For mortgage valuations of improved residential property in the United States, the appraisal is most often reported on a standardized form, such as the Uniform Residential Appraisal Report.  Appraisals of more complex property, such as income producing, raw land, are usually reported in a narrative appraisal report.

A common misunderstanding is that the appraisal amount is only for the house itself.  In fact, the figure appraises the total value of the home and any other permanent structures, along with the land on which the house is built.

Why is an appraisal needed?

Because real estate transactions occur very infrequently, and every property is different from the next, a property appraisal is needed to find the property’s “market value”. The market value is the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length (the parties are independent and on an equal footing) transaction after property marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion.

An appraisal is used as the basis for mortgage loans, for settling estates and divorces, for tax matters, as well as other endeavors. Sometimes the appraisal report is used by both parties to set the sale price of the property appraised.

How is an appraisal performed?

A real estate appraisal is completed by a certified, state-licensed professional who determines the value of the property. Appraisers are licensed by individual states and are held to strict ethical standards. Appraisers are the third party whose purpose is to give their opinion of the market value of a home. Ideally, the appraiser should not be connected with anyone involved with the property transaction.

The cost of an appraisal is typically around $300, but can be more depending on the price of the property. The appraiser gathers information for the appraisal report from a number of sources, but the process often begins with a physical inspection of the property, inside and out. Additionally, the appraiser may look at county courthouse records and recent reports from the local real estate multiple listing service.

What is included in the appraisal report?

* An explanation of how the appraiser determined the value of the property;

* The size and condition of the house and other permanent fixtures, along with a description of any improvements that have been made and the materials used;

* Statements regarding serious structural problems, such as wet basements and cracked foundations;

* Notes about the surrounding area, such as new or established development, rural acreage, and so on;

* An evaluation of recent market trends of the area that may affect the value;

* A comparative market analysis that supports the appraisal; and,

* Maps, photographs, and sketches.

Appraisal Information


What is a property appraisal?

Real estate appraisal, property appraisal, property valuation, or land valuation is the process of valuing “real property”. Real property is any subset of land that has been legally defined, and the improvements to it made by human efforts; any buildings, machinery, wells, dams, ponds, mines, canals, roads, various property rights, and so forth.

For mortgage valuations of improved residential property in the United States, the appraisal is most often reported on a standardized form, such as the Uniform Residential Appraisal Report. Appraisals of more complex property, such as income producing, raw land, are usually reported in a narrative appraisal report.

A common misunderstanding is that the appraisal amount is only for the house itself. In fact, the figure appraises the total value of the home and any other permanent structures, along with the land on which the house is built.

Why is an appraisal needed?

Because real estate transactions occur very infrequently, and every property is different from the next, a property appraisal is needed to find the property’s “market value”. The market value is the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length (the parties are independent and on an equal footing) transaction after property marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion.

An appraisal is used as the basis for mortgage loans, for settling estates and divorces, for tax matters, as well as other endeavors. Sometimes the appraisal report is used by both parties to set the sale price of the property appraised.

How is an appraisal performed?

A real estate appraisal is completed by a certified, state-licensed professional who determines the value of the property. Appraisers are licensed by individual states and are held to strict ethical standards. Appraisers are the third party whose purpose is to give their opinion of the market value of a home. Ideally, the appraiser should not be connected with anyone involved with the property transaction.

The cost of an appraisal is typically around $300, but can be more depending on the price of the property. The appraiser gathers information for the appraisal report from a number of sources, but the process often begins with a physical inspection of the property, inside and out. Additionally, the appraiser may look at county courthouse records and recent reports from the local real estate multiple listing service.

There are two primary appraisal methods for residential property. In the sales comparison approach, the appraiser compares the property with three or four similar homes that have sold in the area, often called comparables, or comps. The analysis considers specific components, such as lot size, square footage of finished and unfinished space, style and age of house, as well as other features such as garages and fireplaces.

The cost approach is used more for new property and is based on reproduction costs. The appraiser estimates the cost to replace the structure on the property if it were destroyed. The appraiser then looks at land value and depreciation to determine the property’s worth.

What is included in the appraisal report?

The appraisal report generally includes:
* an explanation of how the appraiser determined the value of the property;
* the size and condition of the house and other permanent fixtures, along with a description of any improvements that have been made and the materials used;
* statements regarding serious structural problems, such as wet basements and cracked foundations;
* notes about the surrounding area, such as new or established development, rural acreage, and so on;
* an evaluation of recent market trends of the area that may affect the value;
* a comparative market analysis that supports the appraisal; and,
* maps, photographs, and sketches.

How to prepare for an appraisal

Prepare for your home appraisal like you would for a home sale. Make sure all the maintenance you can do is completed; this includes clearing and trimming the yard, to painting the house. Give the appraiser full access to your home, and work with him. Inform the appraiser of your home improvements. Let him know about the new windows, new floors, the finished basement, etc. If you know why a similar home in your neighborhood sold for less, let the appraiser know why your house is different.

Recovering from a low appraisal

Is there anything that can be done when an appraisal is lower than what you believe to be the value of your property? For example, you discover that your $300,000 asking price is much higher than the appraised value of $250,000.

Take a look at what may have caused the low appraisal. It may be due to factors that you could correct, such as repairs or maintenance. In this case, the appraiser may be willing to take a second look and adjust the appraisal accordingly once these items are corrected.

You also have the option to order a second appraisal. If the original appraiser is inexperienced or unfamiliar with the area where the property is located, the new appraiser may uncover mistakes the first appraiser made.

If you believe that an appraisal is simply not an accurate representation of the property’s value, and the appraiser is not willing to listen to your concerns, you can go to your state’s licensing agency for appraisers and file a complaint.

Market Value versus Assessed Value

The “market value” of a property is defined as the most probable price which the property should bring in a competitive and open market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently and knowledgeably, and neither being under duress to act, and represents the estimated net proceeds to the seller.

The “assessed value” is defined as the value of each property used in the computation of the property taxes. After allowances for personal exemptions, it becomes the taxable value to which the tax rate is applied. The implementation of Constitutional Amendment 10 in 1994 limits subsequent annual increases in assessed value.

Home Appraisal versus Home Inspection

A home appraisal is not the same thing as an inspection. If you’re buying a home, you’ll want to hire an experienced home inspector to point out any potential problems that could turn into costly nightmares in the future. Property appraisers will likely make note of any obvious issues, but they won’t test your heat and air, check the chimney, or determine if your plumbing is up to code. That’s the job of the inspector. If a home inspection is performed prior to the appraisal and that report is provided to the appraiser, a more useful appraisal can result.

Automated Valuation Models (AVMs)

Automated valuation models, or AVMs, are growing in acceptance. These rely on statistical models, such as multiple regression analysis or geographic information systems (GIS). While AVMs can be quite accurate, particularly when used in a very homogeneous area, there is also evidence that AVMs are not accurate in other instances such as when they are used in rural areas, or when the appraised property does not conform well to the neighborhood. AVM’s have also gained favor in class action litigation, and have been substantiated in numerous cases, both in Federal and state courts, as the appropriate method for dealing with large-scale real estate litigation problems, such as contaminated neighborhoods.

Why is an appraisal needed?

Because real estate transactions occur very infrequently, and every property is different from the next, a property appraisal is needed to find the property’s “market value”. The market value is the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length (the parties are independent and on an equal footing) transaction after property marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion.

An appraisal is used as the basis for mortgage loans, for settling estates and divorces, for tax matters, as well as other endeavors. Sometimes the appraisal report is used by both parties to set the sale price of the property appraised.

How is an appraisal performed?

A real estate appraisal is completed by a certified, state-licensed professional who determines the value of the property. Appraisers are licensed by individual states and are held to strict ethical standards. Appraisers are the third party whose purpose is to give their opinion of the market value of a home. Ideally, the appraiser should not be connected with anyone involved with the property transaction.

The cost of an appraisal is typically around $300, but can be more depending on the price of the property. The appraiser gathers information for the appraisal report from a number of sources, but the process often begins with a physical inspection of the property, inside and out. Additionally, the appraiser may look at county courthouse records and recent reports from the local real estate multiple listing service.

What is included in the appraisal report?

* An explanation of how the appraiser determined the value of the property;

* The size and condition of the house and other permanent fixtures, along with a description of any improvements that have been made and the materials used;

* Statements regarding serious structural problems, such as wet basements and cracked foundations;

* Notes about the surrounding area, such as new or established development, rural acreage, and so on;

* An evaluation of recent market trends of the area that may affect the value;

* A comparative market analysis that supports the appraisal; and,

* Maps, photographs, and sketches.

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