What is Real Estate Appraisal? Why Does it Matter?

When you buy a house, there are various factors you need to consider, such as the house's budget, location, amenities and many more. But, in buying and selling, there can be price variations, and the property's value might be lost. The seller may increase the price, or the lender may not value the property accurately. Therefore, real estate appraisal provides an exact solution to your problem.

When you sell, buy or refinance your home, you are always advised to appraise. It is a nerve-wracking process to ensure that the property is valued fairly. The property market is changing drastically, and so does the valuation; therefore, an appraisal is important. In this article, you will learn what this real estate appraisal means and why it matters in the property market.

What is Real Estate Appraisal?

An appraisal is getting an unbiased professional valuation of the property in the present condition and at the current market value. In the purchase and sale transaction between buyer and seller, real estate appraisal can help you understand whether the home price is appropriate based on factors like the home's condition, location, and other features.

There can be a bias between the buyer and seller's valuation. Therefore, to solve this disagreement, an appraisal process is conducted, and a market value is decided on which both parties can agree.

If there is refinancing on such property, the banks must get assurance that they are not lending more money than its worth in the market. Banks have to ensure that there is no overestimation as the property serves as the collateral for them. So, the appraisal becomes an important process to get an exact property value.

What is the Process of Real Estate Appraisal?

Appraisal ensures fair valuation; therefore, the process must be transparent and based on various factors to gauge the fair value.

• The process includes the appointment of an appraiser. They will check various factors and compare prices for fair market value. An appraiser has to look at the current market trends and the prices of similar properties in recent times.
• Various home amenities, like bedrooms, bathrooms, floors, square foot area, interior and exterior features, location, and other determinants, will be evaluated.
• An appraiser will also check about the renovation requirement or other loopholes, if any, to decide the value.

Post collecting all the information and comparing the features, prices, and market value, the appraiser will then conclude the exact value. So, this is the general appraisal process to follow. However, different methods are used to conclude.

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What Do Real Estate Appraisals Take into Consideration?

Real estate appraisals take into consideration diverse essential aspects of the property to ensure that there is an accurate evaluation. So, some of the important factors are as follows:

• Size of the property
• Age of the building or home
• Location, proximity to basic and essential needs like hospitals, roads, markets, schools, stations, etc.
• Strength of the structure
• Wear and Tear of the construction
• Rental prices
• Rate of return
• The current valuation of similar houses in the vicinity
• Market trends

What are the Real Estate Appraisal Methods?

The homeowner or the lender appoints the appraisal team to research the property valuation. The homeowner bears the cost of appointing the appraiser. They consider various methods, and some important methods for such valuation are as follows.

• Sales Comparison

  : In this method, the appraiser looks into the sale of similar property in the neighbourhood to understand the market value of that area. Suppose, in the neighbourhood, someone has sold their property, the appraisal team will check that house's price and gauge the present rates in that market. Generally, three such properties are evaluated to get the average value of the area. This comparison is an important method because it involves the analysis of previous trends in the recent past. So, in this method, the sale of the property is compared.

• Cost Approach of the Property

  : In any business, it is important to understand how much to value the product based on its inventory cost. Similarly, in the real estate sector, the construction cost is important to understand how much return the homeowner should expect. So, in this process, the construction cost is evaluated, and based on the evaluation, the market price is fixed. It also considers the cost of maintenance because it is prone to depreciation. Therefore, it ensures that all the costs are involved in gauging the exact market price.

• Income Approach

  : The income approach is important while appraising the property value. In this method, the appraiser has to analyse the potential income the property can generate. It considers various factors like rental income, operating costs, and market trends. So, in this, there is the capitalisation of the net operating value of the property, and based on it, appraisers can make their reports. If you are financing the property for future investment, you must know its rate of return. Thus, the appraiser has to provide reports on its potential income in the future.

While we looked into the process and methods of real estate appraisal, let's also look at why it is important and why it has become essential to follow appraisal procedures.

Why Is Real Estate Appraisal Important?

Property value is a dynamic concept that changes based on various determinants in the market. The appraisal process is important to ensure that there is no overvaluation and devaluation of the property. Let's understand in bits, why you should move for property appraisal.

Establishing Fair and Unbiased Transactions:

A seller can overvalue their property, a buyer can devalue the property, and the lender cannot get the exact value of the property. So, there are a lot of ambiguous situations while determining the market price. Thus, an appraisal is important to reach a fair price that does not overvalue or devalue the property rates. Appraisal ensures the property is valued based on various factors to get an unbiased rate. This appraisal evaluation solves the buyer and seller disagreement and ensures that the bank lends loans fairly to the borrower.

Mortgage Lending:

The banks have to accept the property as collateral for mortgage loan applications. So, the appraisal process makes it easy for the banks to understand the property's value and lend the loan to the borrower. Banks generally lend loans to the collateral's market value; therefore, this appraisal is important for you. The fair property value ensures safety for banks because, if the borrower cannot clear the loan, banks can sell the property and recover their loan amount. Therefore, this appraisal procedure becomes of utmost importance for lenders and borrowers.

Wise Investment Decisions:

Knowing where your investment stands and whether it is trustworthy is important if you are buying the property. Therefore, real estate investors rely on appraisal methods to make wise and informed investment decisions. It gives them crucial insights into the property value, potential income, returns on investment and other benefits. So, evaluation of these aspects to ensure that there are opportunities for high returns and minimising risks is important for investors.

Property Taxation:

Appraisals not only help buyers, sellers, or lenders, but it also helps governments ensure the property's fair taxation. Appraisals provide fair value based on which the government can decide the property tax. Accurate appraisals will help homeowners be taxed fairly based on current trends.

Legal and other Estate Matters:

Real estate involves buying or selling; sometimes, it involves conflicts and other legal issues too. So, in such cases, an appraisal is very important for arbitration and getting the property's accurate value. It assesses the exact value of the property and ensures that there are unbiased and credible negotiations to get lawful resolutions.

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Tips for Buyers and Sellers

• Buyers and sellers must analyse the past trends of the particular area. It helps them to understand and quote reasonable prices.
• If you are doing an appraisal through the bank, you must be present at the time of evaluation. Moreover, both parties must be present for proper evaluation.
• Sellers must provide all the relevant documents of the property to the appraisal team.

Conclusion

Real Estate Appraisal is a fundamental procedure in the property market. Therefore, if you are looking for buying or selling properties in new or existing projects in Ahmedabad, Mumbai, Gurgaon, or Pune, you must be well-prepared with all the information about their market value. The appraisal procedure makes it easy for buyers, sellers, lenders, or other stakeholders to ensure that the property value is justified in the market and everyone involved get their fair due prices.

Collecting all the information about the property and market trends is important, so why not visit Adani Realty to collect all the legit and resourceful insights about properties? Here, you can get critical insights about properties and market trends.