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An appraisal is an opinion of value of a property as of a certain date, prepared by a licensed appraiser.
When arranging a loan for a home purchse it is usual for a lender to order an appraisal to verify that the home
is really worth the purchase price. Appraising is not an exact science and two appraisals of the same property
may come up with different results.
Download NAR Report: What is an Appraised Value
There are three approaches to appraisal, in the case of a single family residence the market comparison
approach is almost always used. This is based on the principle of substitution which simply states
that a buyer will not pay more for a house when they can purchase a similar property for less.
In the market comparison approach, the appraiser will seek out homes that have sold recently in the
neighborhood that are similar to the one being appraised. Usually these homes will be within one mile of the
subject property. To compensate for any differences between the comparable homes and the subject
home the appraiser will add or subtract value to the comparables. Using the principle of substitution the adjusted
value of the comparables becomes the appraised value of the subject property.
As part of the appraisal process the appraiser will visit the home. He will prepare a report noting the condition
of the home, what amenities are present, what improvements have been made. He will measure the external
dimensions and draw a plan of the home to determine how many square feet it has.
Download Stewart Title Report: The Appraisal
There are a number of different types of appraisal depending upon the intended purpose; for example insurance,
purchase, refinance. There is not one single value for a house, different types of appraisal will come up with
different values. For example a fire insurance appraisal may determine the full replacement cost of a house which
could be higher than the purchase price.
In a refinance appraisal the lender may be willing to be more generous than in a purchase appraisal
because the homeowner has a track record of making payments on time whereas a homebuyer is more of an
unknown risk. Just because you have an appraised price from a recent refinance, you should not assume that
your home is worth that much when you are putting it on the market to sell.
You may have made improvements to your home but these do not necessarily add value. If you recently put in
new carpet there is no value increase because it is normal for a house to have a carpet in good condition. If you
have added a pool this will increase the value of the property but probably by less than the cost of the pool.
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