Appraising property relates to the value of the property and involves an examination of its age, the condition it is in, and any fixtures or appliance which may be included in the property.
WHAT IS APPRAISING PROPERTY?
The process of appraising property can also be referred to as property valuation or land valuation, and is a set of considerations which determine the value of a property.
Appraising a property is an essential stage in the buying process because it is usually required by the mortgage lender. It can also be essential in settling estates, divorces, and for taxation purposes.
There are different things that affect the appraisal of a property, including
- the location of the property
- how old the property is
- whether or not the property is in need of renovation
- the possessions of the house
WHY IS APPRAISING PROPERTY IMPORTANT?
If a property appraisal determines that the price set for the property greatly exceeds its worth then the mortgage lender may refuse to provide the buyers with the funds necessary to close the deal.
In this case , the seller may also be negatively affected if he/she cannot find anyone willing to buy the property at such an inflated price. These kinds of situations can be rectified either by the seller reducing the price of the property, or the buyer finding the funds from another source.
Therefore, appraising property is advantageous for both the bank that is lending to the buyer and the buyer themselves – the bank is protected from acquiring a property which is not worth the money lent, and the buyer is saved from investing his/her money into a property that is overpriced.
It is important to receive an expert opinion when it comes to the value of a house before investing a large sum of money into it.
THINGS PROPERTY BUYERS SHOULD CONSIDER ABOUT APPRAISING PROPERTY
- Even if you are not willing to do an appraisal but are planning to borrow a loan from a bank, the bank will ask for this appraisal
- The process of appraising a property involves considering the size of the place, its location and the area it is found in, the number of rooms and bathrooms in it, the age of the house, the garage, the fireplaces, etc. Appraisers then tend to compare these factors with three or four other properties that have been sold in the same area.
- Sometimes the issue which may have lowered the value of the property can be repaired and dealt with by the owner. This is why it is important to examine the appraisal and discuss it with the owner, with the possibility of having the appraisal repeated once issues have been repaired.
Methods of Appraising Property
- SALES COMPARISON METHOD
The appraiser considers all the aforementioned factors related to the property and its value, and then compares it to three or four other houses in the same area that have been sold.
- COST APPROACH METHOD
This is used to estimate the value of the properties that have been improved by one or more buildings.
This method involves two different aspects: the separate estimates of value for the building and the land, as well as considering the depreciation. These two different estimates are eventually added together in order to calculate the value of the whole property.
This approach is considered a useful one to use when it comes to properties which are not frequently sold and are not income-producing properties, such as schools, churches, hospitals, and government buildings.
- INCOME CAPITALISATION APPROACH
This is mainly based on the relationship between the rate of return an investor requires and the net income that a property produces. Properties which are usually appraised in this manner include apartment complexes, office buildings, and shopping centres.
- The four elements of value are demand, utility, scarcity, and transferability. These can be affected by factors such as social and economic trends, government controls, and environmental conditions
- Value versus cost: the value is the thing that helps the appraiser to decide whether the cost given to the property is what it actually deserves
- Market value: the most probable price that the property will succeed in getting in a competitive and open market. There is a difference between the market price and the market value
At Eldron property appraisal is one of the many services we offer. We give home buyers the upper hand. If you are interested in any of our services at Eldron, book a free consultation with us to see if we are the right company for you.