What are the Types of Appraisals?
Appraisals | An alternative to a professional appraisal is to ask a professional real estate agent for a written market analysis of your property.
Setting the right price is an important first step in the process of selling a home. Is it necessary to spend $200 to $400 for a professional appraisal of your property before placing your home on the market? A professional appraiser’s opinion of a property’s market value is based on the recent sales of similar homes and on the square footage and condition of the property. Different appraisers might come up with different figures. Even if all of them agreed on a value, there is no guarantee that you would receive that amount for your property. This analysis will include information about recent home sales in your neighborhood, as well as how those homes compare to yours. Real estate agents may provide this service with no charge or obligation. If you are still unsure of the value of your home, you may wish to pay for an appraisal.
Fair Market Value | FMV has been defined as “the price that a buyer is willing to pay and the seller is willing to accept, when both parties are knowledgeable about the property and neither is under any time pressure to buy or sell.”
What is the best price for a piece of real estate? Mortgage lenders, appraisers, and real estate brokers use what is called the “fair market value” (FMV). Sounds great, but how is this price determined? The starting point for determining a fair price may be an opinion of the value or “competitive market analysis”. Such an analysis uses information on similar properties which are: 1) currently for sale, 2) already sold, or 3) expired properties (those which did not sell). Local, national and international trends and market conditions must also be evaluated. By comparing similar properties in each of the three categories and the market conditions, appraisers, lenders and agents come very close to the maximum price that buyers would be willing to pay for a house.
Professional Appraisals | The cost of the appraisal will be based on the complexity of the appraisal report and the time required to complete it.
Before your mortgage application is approved, the lender will order a professional appraisal of the home to make sure that the agreed-upon selling price is justifiable based on the current market value of the property. A professional appraiser will choose the appraisal technique that is applicable to the particular property to arrive at an unbiased opinion of value. One approach is to look at comparable homes in the area that have sold within the last six months. If there are a number of similar properties that have sold recently, the appraiser’s job is easy. It is more complicated to arrive at the appraised value if your home is located in a rural area or a diverse neighborhood. The appraised value will usually be very close to the sale price. If the appraisal comes in lower, the real estate agent may be able to provide the appraisers with additional information on recent sales which will result in increased value.
Lenders Appraisals | Renovations and home improvements made by the seller usually add value to the home, while defects such as needed repairs or code violations decrease the property’s value.
Many sellers think that the price of their home is determined solely by what they are willing to accept and what the buyer is willing to pay. There is one more variable that can affect the sale of a home assuming a bank loan is involved–the lender’s appraisal. To protect the interest of their investors, the buyer’s mortgage lender hires a licensed appraiser to give an independent, objective opinion of what the property is worth. The appraiser compares the house with similar homes in the neighborhood that have recently sold. Square footage, amenities and the condition of the home are taken into account. The seller’s real estate agent can provide the appraiser with up-to-date information about neighboring homes that have sold that support the seller’s asking price.
Working with Appraisers | A real estate agent can work to minimize the seller’s risks associated with the appraisal process by pricing the home as close to fair market value as possible.
After the buyer and seller come to a “meeting of the minds” on the price of a house, there is one more person who must be convinced that the house is worth the selling price–the mortgage company’s appraiser. The appraiser looks for three similar houses that have sold in the same area within the last several months, and compares the selling prices of these homes with the one that is now on the market. The appraiser makes adjustments to account for the differences in each property, and averages the adjusted prices of the other three homes to arrive at a final opinion of value. In subdivisions or condominium projects where there are many similar properties and numerous recent sales, the appraiser’s job is relatively easy. In neighborhoods of older homes that have been renovated or remodeled over the years, it can be like comparing apples and oranges. If the appraiser’s evaluation is lower than the selling price, it can threaten the transaction because the lender may decline the buyer’s loan because of the discrepancy.