How Does a Real Estate Appraisal Work?
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- Опубліковано 9 лип 2020
- Full Article: retipster.com/terms/appraisal...
What is an Appraisal?
An appraisal is an unbiased assessment of a property's value, prepared by a professional appraiser. Appraisals can also be prepared to estimate the true value of a business, equipment, and other asset classes.
Understanding Real Estate Appraisals
An appraisal plays a very important role in every real estate transaction.
Real estate investors, lenders, tax authorities, and insurance companies all rely on an accurate property valuation to do their jobs effectively. For instance:
- Lenders rely on the appraised value to determine their loan amounts and Loan-to-Value Ratio.
- Insurance companies use the appraised value to determine insurance coverage and premiums.
- Tax authorities rely on accurate property valuations to determine annual property taxes.
- Real estate investors need to understand a property’s value to make an appropriate offer, make improvements and eventually make a profit.
An appraisal report is always accompanied by supporting data to support the validity of the valuation.
Property Valuation Basics
In economic terms, the property value is defined as the worth of future benefits to the property owner.
With most consumer goods, the benefits of ownership are realized virtually immediately. However, real estate benefits are realized over a long period.
For this reason, a real estate appraisal must take into account the long-term effect of the four elements of a property’s value:
Demand - The level of desire (or necessity) to purchase a property combined with the financial ability to do so.
Scarcity - The supply of similar properties to meet demand.
Utility - The ability of the property to meet the needs of current and future buyers.
Transferability - The ease with which property rights can be transferred to future owners.
It’s important to point out that value is not the same as cost or price. Concerning real estate:
Cost is the money needed to build or acquire the same property in today’s dollars.
Price is what a buyer actually pays for the property.
Value is what the appraiser believes a buyer would be willing to pay for the property based on his assessment of the abovementioned four elements.
Value isn’t static or concrete. Most appraisals point to the fair market value, which assumes that both the buyer and the seller are reasonably knowledgeable about the property, acting in their own best interests, and free of external pressures that would result in a hasty transaction.
Real estate investors may need to know other types of property valuations. For example, value-in-use describes the financial benefit of a specific property for a specific use, such as the revenue derived from a beachfront vacation rental. Liquidation value estimates the price a property might bring if sold at auction in the event of foreclosure, for example.
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Thank you.
Good stuff; thank you!
Which programmme are u using
I tried to find a good explanation in my native language. No luck. Until I found this material. Thanks!
Alright! So glad to hear that!
Nice explanation. Thanks!
Thanks for watching!
Your description of the Income Capitalization Approach (ICA) is somewhat misleading. You described Market Value for the Sales Comparison and Cost Approaches; however, you described Leased Fee Value for the Income Approach. The ICA only recognizes the subject's income as its value in leased fee valuations. In market valuations, the income is derived from the market. The subject's financials are just another point of data. Example: if the subject is performing under-market due to poor management, that is NOT a reflection of the market. Therefore, it would not be considered in the ICA when reconciling to market value within the ICA. I hope that clears things up a bit.
That does help quite a bit! Thanks for sharing your wisdom with us, Scott!
We look forward to working with appraiser.We work at Total software,Anow software.
We work for Residential single family and Commercial Appraisal.Anyone contract me?
So how are homes being appraised for way less than what they are being sold for these days?
Possibly because the appraiser is being conservative and doesn't want to get blamed for over-valuing the property if the buyer ends up defaulting on their loan. This tends to happen when market values are rising or falling very quickly (or if a buyer is legitimately over-paying for the property).
Am I to mislead it's solely based on demographics
Way over thought fundamentally flawed process. Is not indicative of buyer seller attitudes!
Thank you for this in-depth information. I picked an online real estate school due to the flexibility however I forgot that I learn better with an in-person instructor because I get so bored reading due to my attention span 🥲
I'm glad it helped! Thanks for watching.