Real Estate Appraisal: Meaning, Process, and Methods

While purchasing a home, there are several aspects worth considering including the location of the property, the pricing, amenities on offer, and many others. However, there may be variations in prices while purchasing or selling the property, especially if sellers increase prices or lenders do not accurately value the same. Hence, real estate appraisals are a good solution to these issues. Most experts recommend appraisals while purchasing, selling, or refinancing a home. It is a procedure that ensures that properties are fairly valued. 

A Closer Look at Real Estate Appraisal

Real estate appraisal means getting a more accurate and unbiased property valuation in its current condition and based on the present market value. This helps you work out whether the property price is suitable based on various factors like the market rates, location, features, and condition, among others. There are often biases present in the valuations of sellers and buyers. This is where an appraisal process helps resolve the same while enabling the fixing of a market value which both parties can agree upon. In case of refinancing as well, banks require an assurance that they are not lending more money than the current market value of the property. Appraisals help greatly in these scenarios as well. 

Real Estate Appraisal Procedure

Here is a closer look at the real estate appraisal procedure: 

• An appraiser is appointed for checking several aspects and also comparing prices for identifying the fair market valuation. 
• Appraisers also evaluate the present market trends and prices of similar properties in the locality. 
• Several amenities and features such as bathrooms, bedrooms, square footage, floors, exterior and interior features, and other aspects will also be checked by the appraiser. He/she may also check for renovation needs or any other aspects that may influence the final valuation of the property. 
• After gathering all the data and comparing pricing, features, and market valuations, the appraiser will then release the exact value. 
• Real estate appraisals usually take the property size, age, location, proximity to basic needs, structural strength, wear and tear, rental prices, rate of return, present valuation of similar properties, and market trends into account. 

Methods for Real Estate Appraisal

Here are some of the appraisal methods that are commonly followed by appraisers. 

• Sales Comparison- Sales of similar properties in the area are evaluated for understanding market values. 
• Cost Approach- The construction cost is analyzed and the market price is fixed on this basis while also considering the cost of maintenance (due to depreciation). 
• Income Approach- In this method, appraisers evaluate the property’s potential income generation abilities. These aspects include operating costs, rental income, and market trends. The net operating value is capitalized and reports made on this basis. 

Why Real Estate Appraisals Matter

Here are some reasons which illustrate why real estate appraisals are important. 

• They enable unbiased and fairer transactions where there is no overvaluation or undervaluation of properties by buyers and sellers respectively. Lenders can also get exact valuations with this process. Fair prices are achieved which all parties can agree to for a more transparent transaction. 
• Banks can lend better once they understand the value of the property. Banks take the property as the collateral for any home/mortgage loan. Loans are offered as per the market value of the property. Hence, they need a real estate appraisal to ensure a fair value and proper lending which is not more/less than the actual valuation of the property. 
• The property appraisal process also enables better investment decisions across the board. Investors depend hugely on appraisal methods and reports to take decisions. This helps them understand the future investment returns, potential income, property valuation, and other crucial factors. 
• Appraisals are also essential for taxation of properties. Governments can issue fair tax rates based on the accurate/fair value of a property. 
• Appraisals are also vital for legal arbitration and estate proceedings at times. This enables trustworthy and unbiased negotiations in the case of any disputes. 

To sign off, it can be stated that property appraisals are essential in order to obtain a fair and unbiased value of any property. This is highly beneficial not just for buyers and sellers, but also lenders and investors.