What is a Real Estate Appraisal?
Appraisal is a document that gives an estimate of a property’s fair market value. An appraisal ascertains the market value of a property. The appraisal is performed by an “appraiser” who is typically a state-licensed individual trained to use existing data to come to a home valuation. In an appraisal, consideration is given to the property, its location, amenities, and the current market values of similar properties.
Why get a Home Appraisal?
An appraisal is a necessary step in the home purchase or home refinance process. Most lenders will not lend on a property without an appraisal. Below are a few more reasons why an appraisal might be necessary:
- To determine a value when selling a home.
- To contest high property taxes.
- To finalize and settle a divorce.
- To settle an estate.
- To use as a negotiation tool when selling.
- To establish the replacement cost (insurance purposes).
- To protect your rights in an eminent domain case.
- To refinance.
What are Home Appraisal Methods?
Appraisers use three common approaches when establishing the value of a given property:
- Sales Comparison Approach: In this approach the appraiser identifies 3-4 comparable properties in the neighborhood which have recently been sold. Ideally, the properties are close in vicinity (within a 1/2 mile radius of the subject property) and have sold within the last 180 days. These home will be of a similar nature in size, rooms, and layout. The appraiser then compares the sold properties to the subject property. The factors used in the comparison include square footage, number of bedrooms and bathrooms, property age, lot size, view, and the condition of the property. This is the most common approach used in appraising residential or home properties.
- Cost Approach: In this approach the following formula is used to arrive at the property value: Value of the land (vacant), added to the cost to reconstruct the appraised building as new on the date of value, less accrued depreciation the building suffers in comparison with a new building. This is typically used with income or commercial properties.
- Income Approach: In this approach the potential net income of the property is capitalized to arrive at a property value. This approach is suited to income-producing properties and is usually used in conjunction with other valuation methods. The process of converting a future income stream into a present value is known as capitalization. This is typically used with income or commercial properties.
After thorough exercise of the three approaches, a final estimate or opinion of value is arrived upon based on the underlying data. When evaluating single-family, owner-occupied properties, the sales comparison home appraisal approach is most heavily used by an appraiser.
What is the typical cost of a Home Appraisal?
Appraisal costs will vary depending on loan type, property location and type of appraisal required. For most cases you can expect anywhere from $250 to $450 for the appraisal. Once you have applied for your loan a more exact estimate will be provided to you on a Good Faith Estimate of settlement costs. In most cases you will be responsible for payment of the appraisal but only after all required disclosures have been made. You are NOT required under any circumstance to pay for your appraisal before recieving your loan disclosures from your loan officer.
Can I use Another Mortgage Company Even After the Home Appraisal has Been Completed?
Sometimes. In some cases, changing your mortgage company could mean you will have to pay for another appraisal.
