What is a residential real estate appraisal?

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Answered by: Conway, An Expert in the Business Real Estate - General Category
Many Americans, as they grow older and step into adulthood, will cross paths with a residential real estate appraiser. Whether its buying a first home or selling an old, family house a real estate appraisal is an integral part of the process.

An appraiser is a state licensed individual who will determine the "market value" of a home or property. This market value should not be confused with the "sales" price of a home and will be discussed later. In addition to being licensed by whichever state they are in appraisers usually have to be approved by the financial institution involved in the transaction.

The real estate appraisal, also called a property valuation is usually composed of two components.There is an actual visit to the home or property. During this visit the appraiser may take pictures as he/she completes a basic walk-thru of the home. This is the opportunity for the homeowner to mention any upgrades or additions that have been completed on the property.

It is often the perception of a homeowner that these improvements wil dramatically increase the value of a home. This may be true for certain particular improvements while different for others. These improvements should be mentioned, however, as the more positive information the appraiser has the better. Positive information means to, for example, mention the addition put on the kitchen but not to mention that it leaks from the roof.

The appraiser is not a home inspector and will only note what he can see. Therefore, if he sees the roof leaking it will be noted, however, if it is not visible it will not be noted. Documentation may be requested to confirm or verify the age of certain items, the age of a new heating system or roof for example. The appraiser will collect the information, take a few pictures and take that information back to the office to organize into a report.

The next part of the appraisal process is preparing the report. Most appraisals are compiled onto a standardized form called the Uniform Residential Appraisal Report. The information from the walkthru will be entered, public records will be pulled and all entered onto the form. Most residential real estate appraisals are completed using a method called the "sales" approach. This method is based on the concept that a buyer would purchase a "comparable" or similiar property.

Therefore, sales prices of similiar homes, within a certain distance, are researched and averaged. The condition, improvements and additions are taken into account and only the homes closest to the subject of the appraisal are considered proper comparables. All of these factors taken into account and a "market value" is determined.

This market value of home should not be confused with a "sales" price however. A seller often has sentimental attachments to homes and sometimes price a home higher than the market value. Once an appraisal is completed it is the responsibility of the buyer to either negotiate with the home seller or decide whether to buy the home.

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