Appraising real estate and placing a value on land and property is the practice of creating an opinion of the worth of real property (typically the market value). The uniqueness of all real estate transactions and the distinctiveness of each property means that appraisals are necessary. Appraisals of real property matter because the condition of a given property may not be as it appears. The location of a property is also a determining factor when calculating its value., It’s value based upon its location fluctuates with the local real estate marketplace based on comparable properties. Renovations and refurbishments that have been made since a prior appraisal typically appreciate the value of the property. Real estate appraisal valuations are the cornerstone of mortgage loans, property taxation as well as personal settlements regarding divorces, bankruptcies, estates, etc. Often these reports are even used to derive a sale price of a given property.
Real estate appraisers are commonly called ‘land valuers’ or ‘property valuers’. When a valuer’s estimation is based upon market worth, it will also take into account the chief and paramount use of the real property. Mortgage values of renovated houses, are usually reported on the Uniform Residential Appraisal Report; however, commercial properties are conveyed in a narrative account and finalized by a certified General Appraiser.
Types of Value
- Market value
- Value in use
- Investment value
- Insurable value
- Liquidation value
Price vs Value Sometimes there are variances between what the property is actually worth (market value) and the asking rate (price). The price for which the property sells may be higher or lower than the market value. This can happen because of many factors which include: the buyer or seller’s state of mind, financial standing or requirements, idiosyncrasies between partners in a close relationship and differences between two parties conducting a deal for an investment property.
The most typical reason for the cost being different from the market value is that one of the parties, the buyer or the seller, is unaware of the property’s real market value and thus, signs a contract at a price that’s either overvalued or undervalued. When a property is overvalued the seller inherently will benefit and if it is undervalued the buyer would certainly be very happy. It is the duty of a genuine property appraiser or valuer to find the real market value of the real estate as opposed to its market price for the benefit of both the buyer and seller.
The Three Approaches to Value
There are three procedures for defining value. These procedures are generally denoted as the "three approaches to value". They are normally mutually exclusive:
• The Sales Comparison Approach
• The Cost Approach
• The Income Approach
Nowadays, more scientific methods are being used to appraise property. These new methods rely on measurable data, risk analysis, location based methodologies, as well as many other variables. A highly trained and skilled appraiser such as Robert Campbell, has to consider ‘the type of work’, type of value and type of interest for the property in question. Additionally, the quality and amount of data available greatly impacts a property appraiser’s choice of a suitable valuation method.
If a home inspection report is made available to the appraiser, Robert would be better able to conduct an as appraisals as he would be aware of any structural liabilities, such as major defects or expensive issues that the property might have.
Governing Bodies and Professional Organizations
States control appraisal practices within the United States through various regulatory bodies. The most important regulatory body is TAF (The Appraisal Foundation).
Appraisers must pass stringent tests and have well documented experience in the field as well as satisfactory reviews to become full-fledged appraisers.
Whether someone is a potential buyer or seller, having a property properly appraised by a professional will give them extremely valuable information to help ensure a fair deal amongst all parties