Determining the real value of a property is important for various reasons. It helps a great deal when you are considering a refinancing loan, investment analysis, real estate taxation, property insurance or when listing your property for sale. However, most investors perform either valuation or appraisal to assess the current value of their properties. Not many people understand the existing differences between the two terms and when to apply each of the concepts.
How does valuation and appraisal compare?
A valuation is a formal assessment of the property’s value, conducted by a qualified and independent appraiser. On the other hand, an appraisal is carried out by a real estate professional, who understands the area well. The report produced from an appraisal is not legally binding, but it is used to market the property in the real estate arena. Lenders often request a valuation to ascertain that the property is appropriate collateral for the mortgage loan you are asking for. Hence, it is more detailed and it takes into account a number of things such as:
• Comprehensive description of the property such as land size and the number of bedrooms
• The property condition
• Its susceptibility to risks such as environmental dangers
• Comparable sales
• All issues that were not taken into account during home inspection
To arrive at the market value of the property, the appraiser may use two methods; cost approach and sales comparison approach. In the sales comparison method, the accredited appraiser deduces the value of the property by comparing it with other properties in the same neighborhood, which have been sold lately. The cost approach looks at the actual cost of replacing the property if it was destroyed. This method is usually applied to new properties.
When is a valuation a necessity?
Besides when you are taking out a mortgage, you will also need a valuation report if you need refinancing in property settlement, conflict resolution, and asset accounting. In addition, where the owner of the property passes on, a valuation can be requested by law, before it is passed on to the beneficiary. Some factors will determine whether your property value comes out high or low. They include physical location, building structure, accessibility, fittings, local authority zoning, and caveats over the property. This whole information is coupled with comparable sales together with the market trends to arrive at the current value of the property.
Usually the appraiser must visit your property and then use the earlier mentioned methods to determine the property value. The assessment is documented, after which they present a report to you, which you will use in getting a loan from the bank. Sometimes, you may realize that the results are not as expected. In this case, you might consider getting another appraiser’s opinion.
Since the outcome of the property valuation will decide whether you will get a loan or not, you can do a few things before the appraiser sets foot in your property. Ensure that the house is tidy and there are no unfinished repairs. Where you had done some home renovations, make sure you provide the appraiser with the details.
As long as you are involved in the real estate industry, you will hear appraisal and valuation terms being used quite often. The two are for determining the market value of the property, only that valuation is formal whereas an appraisal is informal.
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