Real Estate Appraisal
Real estate appraisal is the process in which the actual value of the property is evaluated. In fact it helps in determining the market value of the property. This is required because no 2 real estate property has the same characteristics and they differ in various aspects. As such, there is no standard format for assessing the value of real estate property.
Who performs a real estate appraisal?
Real estate appraisals are usually performed by certified or licensed individuals experienced in this field. However, there are many regions that do not require real estate appraisal to be carried out by a licensed individual.
In case of residential premises in the United States, value of the property is usually reported on a form that is standardized and is referred to as Uniform Residential Appraisal Report. In case of appraisals required for complex property like raw land etc, the appraisals are usually reported in narrative appraisal report.
Types of values sought in real estate appraisal
Different types of values are sought in a real estate appraisal. They are as follows –
- Value-in use
This is the NPV or the Net Present Value associated with cash flow that is generated by an asset for a specific purpose and for a specific owner. The value is usually user-specific.
- Investment value
The investment value is usually higher as compared to the property’s market value.
- Insurable value
The site value isn’t included in the insurable value and it is the real property value that has insurance policy coverage.
- Market value
The market value denotes the price at which sellers and buyers are involved in a property trade that takes place in the open marketplace.
- Liquidation value
This is the value that is sought when a bankruptcy proceeding takes place. It may be either “orderly” or “forced” liquidation.
What does the real estate appraisal report show you?
The real estate appraisal report usually contains the following information -
- Detailed information about the building structures e.g. weak foundation or crumbling walls
- Extensive information about the property in question. Comparison of 3 similar structures is also carried out and the findings recorded.
- The type of area where the house is constructed.
- The report also contains information about factors that may act as a limiting factor in getting a fair value for the property.
The approval of a loan usually depends on the real estate appraisal process. In case the sale price is more than the real estate appraisal value, request for loan may be turned down. In fact banks take into account the appraisal value as a safety measure should the borrower default in making payments.
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