Appraisals...Why we need them
Appraisal -(noun) an estimate of value, as for sale, assessment, or taxation; valuation.
An appraisal is not to be confused with A CMA (current market analysis), CMA's are usually completed by real estate agents to give you a realistic asking price. Also, not to be used as an inspection, they will not check the roof for leaks, or the central air unit.
An appraisal is certified individual that calculates the current price for the market at that point in time.
This process is required by the lender, whether it is in house or an independent. Within the appraisal the home is visited, evaluated and calculated to provide a final market value. From this value, the loan officer determines whether the loan amount is suitable for the specific property.
Typically, high appraisals are well received and low appraisal.... are not. There are a few things that you can do to deal with low appraisals. Sometimes, people tend to overreact when an appraisal comes in low, but there are steps that can be taken and should be, one at a time.
Appraisals tend to happen towards the end of the buying/selling process. This allows time for pre-approval, some legal work, and any corrections that may need to occur to continue the process.
There are two basic methods for appraisals.
Sales Comparison Approach
This process includes finding "comparable" properties that have been sold in the area of the "subject property". Finding the closest comps as possible, as every property is unique.
Cost Approach
This approach is the value in which it would take to rebuild the subject property, this works well with new construction.
So why do we need appraisals?
We need them to prove the value of the home during the current market. Financially, the property needs to be worth the loan that is attached to it.
So if you are looking to buy or sell, and your realtor mentions an appraisal, you'll know why, when and how we have appraisals.
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