How To Carry Out A Proper Real Estate Appraisal

By: Kris Koonar

Price of a property is considered to be one of the most important elements in any transaction related to real estate. Real estate brokers and lenders hire appraisers in order to determine the market value of a particular property. The value determination of real estate properties is essential for the economic well being of the society as well. There are three approaches used for making an estimate of the value of a property:

. Income approach
. Comparison approach
. Cost approach

Although real estate appraisals are detailed reports, some of the things included in are:

. Details related to the subject property along with its comparison to three or four properties similar to it.
. Evaluation and description of the real estate market in a particular area.
. Statements related to the issues the appraiser thinks can be harmful for resale of the property or its value for instance poor access to the property.
. Notations related to the seriously flawed characteristics of the property like a crumbling foundation.
. The type of area the house is in.
. An average estimation of the sales time for the property.

Cost approach:

This approach is effective for properties that are new. It is useful because the cost to build is known. The appraiser makes an estimate on the cost for replacing the structure, in case it was destroyed. Your personal approval will be important in the initial stages of the loan process, but the final loan commitment will depend on a satisfactory and positive appraisal. This is essential because the bank will also need assurance that its investment will be covered in case you default on the repayment of loan.

Sales comparison approach:

The appraiser under this approach estimates a subject market value of the property. It is done by comparing the house to similar properties that have been sold in that area. The properties that are used for this purpose are called comparables. If two properties are alike, the appraiser needs to compare the comparables with the subject property and make proper paperwork adjustments so that the features are in line with the property. This will result in a figure that will show how much each comparable would have got sold for, if it had the same features as the subject property.
The real estate appraisal can help you in the establishment of the market value of a property.

This value is the likely sales price that the property would bring if you offered it in a competitive and open real estate market and therefore it is essential that an appraisal is done with the due consideration and in an organized manner. You can conduct appraisals for rental properties also, even though it will not be similar to what is done for single home families. Income is the most important factor that is kept in mind when an investor buys a rental property. Therefore, income is the basis for determining the value of such properties. The capitalization rate can be taken out on the basis of the rate of return that the investor would be expecting in a particular area.

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