THE HONEST BROKER: PROPERTY APPRAISALS
An appraisal is a supported, defended estimate of the value of a property “as of a given date.”
The date of the estimate of value is important because value changes over time. For example, a condo’s estimated value will likely not be the same today as it was two years ago. The purpose of an appraisal is to estimate a specific defined value. The defined value is determined depending on the purpose for the appraisal. For example, is the purpose to estimate insurable value or market value? If Insurable value is used, only the structure (not the land) is estimated for fire insurance coverage. However, market value takes into consideration both land and structure. It is important that the appraiser indicate which type of value was used and clarify the specific type of value.
The function of an appraisal is how the client intends to use the information, for example, for help in making buying and selling decisions. An appraisal might be used by a client who is a prospective buyer seeking a reasonable purchase price or a seller determining true market price before listing their property. An appraisal is very important to get to determine the market value for a unique property that has very few, or possibly, no “comparable” to the subject property. Possibly, an appraisal can help to determine the value of a residential property at the time a divorce is finalized. However, in the majority of cases, an appraisal is used to establish the maximum loan amount for a mortgage loan application. The cost of an appraisal can fluctuate depending on the complexity of it.
When evaluating value, an appraisal is more accurate and superior to a “CMA”, or “comparative market analysis” approach. An appraiser specializes and is licensed to determine value. A realtor uses past sales that are comparative to the subject property and their use of available data from the MLS may or may not be used accurately. Therefore, an appraisal is an important necessity to determine a property’s value and will be obtained at the direction of the bank, court or an interested seller.
Diane Lott, Broker
Paradise Found Realty, Inc. of Palm City
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