Real Estate Appraisal
July 24, 2006
Find real estate appraisal services online, from California to Texas to Florida, to determine residential and commercial real estate value and market price
Real estate appraisal is both an art and a science. Real estate appraisal schools and online courses (some of the best are in Los Angeles, California, Florida and Texas) give trainees the skills to make a career in real estate appraisal, but a good appraiser has experience in real estate to supplement the school.
Appraisers have software to help with their evaluations. Information entered must be correct, or the software will not produce an accurate appraisal.
An appraisal is an expert estimate of the current market value of a property if it sells freely, that is, what the property will sell for if the buyer doesn’t get a special deal because of family connection, or other abnormal influence on the transaction.
A current appraisal is required by the lender before they will finance residential or commercial real estate. The appraisal is done at the expense of the borrower.
A residential real estate appraisal is performed by comparing residential properties that have sold in the same neighbourhood as the subject real estate. If a large number of residential properties have sold within a few months, it is may be easy to find sales of residences around the same age with similar numbers of bedrooms and baths, similar view, fireplace, deck, air conditioning and other amenities that affect the value of the property. Needed maintenance, such as a new roof is deducted from the value.
If there have not been many comparable sales, or the property is unusual, the appraiser must prepare a formula for the comparables, using a value per bedroom or bath or other differences between the property sold and the property being appraised. This is where art and real estate experience come into play.
For commercial properties set in residential neighbourhoods, or unique properties such as a school or church building where it is difficult to find comparable real estate, an appraiser may use the value of the land plus the value of the improvements.
If the lot under a corner store is worth $100,000, and it would cost another $100,000 to build the store building today, the store is worth $100,000, right? Wrong. How old is the building? It’s not worth the price of a new building if it’s 20 years old. The appraiser must estimate the useful life of the building and how many years are left before major investment will be required.
Another method to appraise commercial real estate, and multi unit residential properties is potential income. The appraiser must balance income, expenses, needed maintenance, building life, vacancy rates, and any other factor which may affect cash flow.
A piece of real estate may be surrounded by high rise apartments and zoned for high rise apartments, but still be a single family residence. The appraiser must then consider the value of the lot to a high rise developer, minus the cost of removing the house.
The appraiser will not consider debt against the building or increased future value due to rising prices in the neighbourhood. An appraisal is today’s value, not tomorrow’s.
Real estate with designated historic structures may be worth less than similar buildings with no designation because of limits on usage.
Other limitations imposed by zoning or bylaws that restrict property usage may affect the value.
An appraiser must balance all the factors affecting the value of a real estate parcel, and come up with a market value. It is considered a good appraisal if the appraised value is within 10 to 15% of the price the property brings at sale.