An appraisal is a detailed valuation of your home comparing it to other similar homes in your neighborhood in order to find the true value in dollars of your home. A property owner may have an appraisal made of a specific property to:
- determine a reasonable offering price in a sale
- determine the value at death for estate tax purposes
- allocate the purchase price to the land and improvements
- determine the amount of hazard insurance to carry
Appraisals can also be requested by a bank/lender for home loans, commercial properties, or land. In order for a bank to lend on your home, they will require an appraisal to see what they are lending on. Banks have always required this and will lend up to a percentage of what the home is worth.
There are two methods that are primarily used for calculating valuation: the cost approach and the market comparison. A third method of calculating value is the income approach which is used when an individual is buying an investment property.
The cost approach is based on the cost to rebuild your home in today’s market. Square footage, costs of materials, land value all go into this calculation. The market approach value is determined by taking 4 to 5 homes that have sold within the last 6 months within 1 mile of your home. The appraiser looks at the area comps of homes that have sold. This will get the true value by using the latest sales in your area.
The cost of an appraisal starts at about $350 and goes up to $750 depending on the type of home (single family, multi family, large scale home) as different styles of homes require more work from an appraiser to complete.
An appraisal is the most accurate form of placing a value on your home. It looks at all the variables in detail, size, age, room count, land, quality, and neighborhood and grades on the overall condition. A typical appraisal consists of about 20 to 30 pages. Other forms that are used for valuation are the town assessors value, which is very general and can be months old. Another form of valuation that is used is a Comparative Market Analysis (CMA). This is a detailed report that a real estate agent uses when determining the value of your home for many of the same purposes listed above.
For more information about appraisals and how they affect the buying/selling process, please email me at bill@billnickerson.com
The Mortgage Markets 