The Residential Real Estate Appraisal And Its Purpose

The Residential Real Estate Appraisal And Its Purpose

The Residential Real Estate Appraisal and Its Purpose.  The residential real estate appraisal is a key component to many real estate transactions.  If you are getting a loan it is imperative that the home “appraise” or you might find your loan terms modified.  If it doesn’t “appraise” … demonstrate a fair market value at least as high the price of your offer … then you may find you will have to add money, or try to renegotiate the sales price with your Seller in order to close your loan and complete your purchase.

Residential Real Estate Appraisals are necessary to protect the interest of both the Buyer and their Lender.  A Buyer doesn’t want to pay too much.  Regardless of how much you understand the market, it is comforting to have the opinion of an experienced licensed appraiser to confirm that you are making a wise decision as you go forward with your purchase.  Lenders, on the other hand, must be assured that they have sufficient value to protect the investment they are making when giving you the loan to purchase the house.

The residential real estate appraisal for a loan to purchase a home is a relatively simple process.  The appraiser looks carefully at the subject property, measures it himself to determine its correct size, and evaluates its overall condition relative to standards set by the appraising industry.  They then select and evaluate “comps”, comparable properties that have sold within a specific time parameter.  Comparisons are made as to amenities, condition, location, etc. and adjustments made.  The result is a Fair Market Value, what a willing Buyer and a willing Seller would agree to given enough time for reasonable marketing.  That is the appraisal for getting a new loan.

There are other purposes for appraisals, however, and they can lead to an entirely different value result even with the same property and appraiser.  It is important to realize who hired the appraiser and why.  If it is for estate purposes then a higher, or lower, value would be in order depending on if you are considering inheritance taxes, or your adjusted cost basis and the
subsequent tax consequences of a sale.

Likewise, residential appraisals for purposes of setting value for a deficiency judgment can trend up or down depending on it you are the lender that foreclosed or the borrower that lost the home.  Value as of the date of the foreclosure must be presented to the court during the deficiency proceedings and, of course, each party has an opposing objective for value in such a situation.

Theoretically, there is but one value, but in reality there is much latitude and subjectivity when an appraiser pulls and evaluates comps and formulates value. The degree of latitude will vary from property to property – some are “cookie cutters” and there is little latitude while others are so unique that no two out of twenty appraisers could get the same number if they wanted to.

Our Advice: It is important to understand that you can’t manipulate appraisals.  Appraisers have guidelines that they must work within or there would be no standards.  Without standards the system would fail.  It is equally important, however, to understand that an appraisal is an opinion of value, and opinions are subject to change and influence within reason.  The question becomes what is reasonable and what is a reason for the reason.  Whether the appraisal is for you, or for another party, be aware of that there could be latent subjectivity influencing the final value. Make sure the appraisal is accurate from your perspective and goals.

The true value of a home is what it means to you and your family.  Don’t let someone else's opinion influence your buying or selling decision if it doesn’t work for you. 

When it comes to choosing professionals to assist you with your real estate needs ... Experience is Priceless! Lisa Wetzel and Jim Valentine, CDPE, SFR, RE/MAX Realty Affiliates, 775-781-5472 carsonvalleyland@hotmail.com, www.carsonvalleyland.com

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Lisa Wetzel and Jim Valentine are the authors of this blog.  Lisa, Jim and Jessie are experts in Carson Valley , Carson City and the tri-county area of Douglas County, Carson City and Lyon County. Call our team anytime at 775-781-5472 or 775-781-3704.  To Search for Homes go to: Carson Valley Listing Book or visit our website at www.CarsonValleyLand.com