The value of your property is the most important factor to consider before making any financial choices. You will inevitably go through a home appraisal procedure if you want to buy, sell or even refinance your property.
purpose of a Real estate appraisal Twofold: first, to help buyers and sellers set a fair price for the house; Second, to help mortgage lenders assess whether or not the current market value of the property is sufficient to guarantee the loan amount. If you go for a blind assessment, it can turn out to be a very nerve-wracking experience. The purpose of this article is to describe how real estate appraisals are conducted from start to finish.
See also: What is real estate valuation and how does it work?
What is the evaluation?
Appraisal is the process of determining the value of a piece of property, such as a plot of land, a business, a parcel of land, or an antique, based on the opinion of a qualified individual. To be considered a certified appraiser, he must have a designation from a regulatory agency within the appraiser’s territory.
The estimated value of an item or property is often used for financial and legal reasons, such as insurance and taxes, or to make a purchase or settle a dispute.
See also: 11 tips to prepare your property for legal and technical evaluation
How does the real estate appraisal function work?
Appraisers record and evaluate every aspect of a property to determine its true market value. Here are some of the most important considerations for appraisers when assigning a value to a piece of property:
- property size
- Number of bedrooms and bathrooms
- The age of the structure
- market trends
- current value
- rental costs
- Consistency in design
Methods of real estate valuation
Before submitting a real estate appraisal, it is necessary to consider a great deal of relevant information, including, for example, the neighborhood in which the property is located, the state in which the property is located, the amount of space currently available and the state of the market. Three basic aspects must be considered.
When appraising a property, the appraiser should be aware of the latest home sale prices in the surrounding area which can be compared to the price being appraised. This gives us some information about current market prices as well as how to value homes nearby. To get an accurate price range for a group, it is usual to examine the prices of at least three different homes.
When we talk about the cost approach, what we mean is that the cost of your property should be similar to the cost of building it in terms of construction expenses. It would be economically unreasonable to own a home that is expensive to acquire but cheaper to develop than similar properties already on the market.
The potential revenue of the property plays an important role in the appraisal process. A different name for this strategy is the income capitalization method. To get the expected rate of return, you must first take the net operating income and then divide that number by the capitalization rate.
The effect of real estate valuation on housing loans
When applying for a mortgage, it is important to do a real estate appraisal because the bank will evaluate your application based on the appraised value of the property. Your credit score and loan-to-value ratio will determine what percentage of the property value banks in India are willing to loan you, although it can be as high as 80% of the property value.
Suppose the value of the property is estimated by the appraiser to be somewhere around 1 cr. The bank will take this assessment into account, and will make you an offer for a loan equal to about 80% of this value.
How do you hire an appraiser?
There are two options for finding a qualified appraiser:
- The lender or appraisal management company will hire an appraiser to assess the amount of home loan that is being borrowed against the property. Companies often use the lowest priced appraisers, which can hurt your valuation. Therefore, you should always choose a skilled appraiser, even if it costs more.
- As a buyer, seller or homeowner, you must hire an appraiser directly if you want to know the value of your property before entering into a contract or putting your home up for sale. Appraisals are also important in real estate litigation or settlements.
Tips for raising the value of your home appraisal
Make sure to maintain your home as if you were going to buy it yourself to increase its perceived value. There are a few things you can do to increase the likelihood of your real estate investment getting a higher appraisal:
- Before evaluating a home, it’s a good idea to take care of any maintenance issues, such as repairing broken grout, removing water spots, and getting rid of pests.
- Don’t forget about the exterior of your home; It is as lively as the inside. Make sure your garden, yard or garage looks beautiful and tear down dead plants and trees that ruin the beauty of your home.
- It helps to include the date, total cost, and nature of any recent home repairs or upgrades. Appraisers sometimes do not notice these nuances. Thus, it is recommended that you provide your resident with a documented description of your business, such as a newly installed patio or roof.
- Draw attention to any beneficial developments in your community, including new roads and services. Since the appraiser is not as familiar with your community as you are, he or she can overlook key facts that may work in your favor.
- Make your home look modern, no matter how old it is. You have to pay attention to the required fixtures that must be in every contemporary dwelling.
- It is your right to ask for proof of an appraiser’s qualifications, so don’t hesitate to ask for documentation of his/her prior work experience and training in residential appraisal.
- You have the right to obtain a copy of the evaluation as part of your due process rights. You can request a copy of your real estate appraisal from your lender or appraiser if you believe the value of your property has been underestimated.
Advice for both buyers and sellers
Before delving into and making any type of financial choice, it is always beneficial for buyers and sellers to do thorough research beforehand.
If the buyer has access to appropriate information about house prices in the surrounding area, they will be more willing to negotiate a fair price with the seller, and the seller will be able to make a more accurate estimate of the value of their property.
At the time of appraisal, the seller must have all paperwork associated with the property. In addition, the entire time that the appraisal is taking place, both parties are required to be present.
Advantages of real estate valuation
Here are four major benefits of doing an appraisal for your new home.
- It protects lenders from making loans on overpriced homes.
- It helps ensure that you, the buyer, don’t overspend to buy a home.
- It highlights any potential problems with the property.
- Helps you achieve a reasonable negotiating position.
questions and answers
What factors have the biggest impact on a home’s appraisal?
The appraisal value of a property is affected by previous sales of similar properties and current market trends. Important variables also include the amenities of the home, such as the number of bedrooms and bathrooms, the practicality of the floor plan, and square feet.
What causes home value to increase?
The appraisal value of your home is affected by its proximity to grocery stores, public transportation, schools, and restaurants. In general, the higher the market value of a site, the higher its valuation value.
Does an unkempt home hurt home value?
If you’re ready to have your home appraised, you must resolve any major concerns that could erode its value, such as damaged floors, outdated appliances, and broken windows. A cluttered property shouldn’t affect the appraisal, but signs of neglect may reduce the amount of money lenders are willing to give.
What might cause an assessment to be rejected?
The reason for the drop in value could be anything from neglecting necessary repairs to deal with a stagnant real estate market. The home’s market value can be estimated by looking at similar transactions in the area. Homes in the area may lose value if sales are poor or sellers accept lower offers.