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What Is an Appraisal?
In the course of an adult's life most folks will become involved in many
different high price-tag transactions. The first is probably an automobile
or a college loan. Then they will enter into a lease agreement to rent
their first apartment, condo or even possibly a home. As time goes by
they work themselves up to buying a home. This is almost always the most
involved, and costly investment, they will make with the exception of
possibly investing in a business or company. Big or small, the one thing
that all of these transactions have in common is that the people involved
are always going to try to asses whether or not they are purchasing, or
selling, something of value relative to its cost. Most people, especially
if it is a first time home buyer, will want to have a professional assist
them in determining the value of any prospective property. In some cases
it is mandatory. These professional appraisers must be certified and licensed,
and the more experience they have within a given market, the better. The
professional appraiser will supply, after thorough inspection, either
buyer, seller or lender with an unbiased opinion as to the value of a
given property. Following here, is a primer on how appraisers go about
the task of assessing a property's fair market value.
1st Step - Inspection:
A proper appraisal will always start with a complete inspection of the
building, land and neighborhood where it is located. The obvious attributes
and deficits of each property will be recorded by the appraiser. How big
is the structure, how many rooms and of what type they may be, the age
and condition of the structure will be verified and any outstanding features
will also be noted. The appraiser will record the size of the dwelling
and the individual rooms. They may also take photographs for reference.
The condition of the plumbing and sewerage systems, heating and air-con
and electrical systems will also be checked and noted. A good appraiser
will also determine hidden aspects such as insulation, water quality and
whether the house is sound and free of pests such as termites.
2nd Step - Determination of Value
After the inspection process the appraiser will then determine the value
of the property using either, or all, of the following methods: a cost,
sales comparison or possibly an income approach.
a. Cost Method
By examining the current construction and material costs, within the
property's area, an appraiser will be able to determine just how much
it would cost to construct a property similar to the one appraised.
The appraisal value arrived at by employing this approach is usually
the highest one because you can usually purchase a home for less than
it would cost to build a new one.
b. Comparison of Sales
A good experienced appraiser can determine a property's value by analyzing
the surrounding neighborhood and all of its features; schools, municipal
services, crime and arson rates, hospitals, police and emergency services
available and access. They will also know whether or not there are
future plans for the construction of either beneficial or detrimental
projects within the area. All of these aspects have bearing on the
final appraised value of any property. The appraiser will also know
the listed value of similar, or comparable properties, or what they
have sold for recently. He will also know what the demand is for a
property of its type within your chosen area. While doing a comparison
evaluation an appraiser must be certain to take note of all of the
features of each property and whether or not they are a factor in
the evaluation of your prospective purchase.
c. Commercial or Income Properties
If you are interested in a property that is for income generation purposes
the appraiser must know this during the evaluation. He will then compare
the rental fees in the surrounding are, examine the operating, maintenance
and liability costs to determine the value.