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Home appraisers are trained to inspect the value of a property and perform unbiased comparisons to arrive at an accurate evaluation based on the current circumstances. While a seller may overvalue their own property due to biased judgment, a buyer may undervalue the same property because of preconceived beliefs.
Therefore, a fair contract price is necessary to ensure that everyone involved, including the seller, the buyer, and the bank, receives a fair deal. Real estate appraisal or property valuation is the method used to determine the property’s fair market worth.
Property Appraisal Methods:
The two prime property appraisal methods commonly used by real estate developers to determine the market value of a property are:
1. Comparative Market Analysis (CMA):
This approach compares the subject property to other competitive properties in the neighborhood that have been recently sold out or are up for sale. The valuer can determine an estimate of the subject property’s market value by examining the features, size, location, and condition of the comparable properties.
2. Income Capitalization Approach:
This method is commonly used for income-producing properties such as commercial buildings, rental properties, and apartments. It involves analyzing the income generated by the property and applying a capitalization rate to determine its value. The capitalization rate takes into consideration the risk associated with the property’s income stream, the property’s location, condition of the property, and other factors.
What property buyers need to know about appraisals:
If you are keen on knowing how appraisal works, it is crucial to recognize its significance in the property buying process. It helps buyers in securing a mortgage and assists in making informed decisions regarding the property’s worth. Furthermore, property appraisal encourages buyers to choose a property that has been evaluated correctly. The buyer typically bears the cost of property appraisal, and it will depend on the size and the location of the property.
The process of appraisal can take several weeks as it varies with the complexity and appraiser’s availability. Typically, the appraisal process takes around a week to complete, but it can take longer for more complex situations. The buyer may face issues if the appraisal is less than the sale price. The buyer must come up with the difference in cash or renegotiate the purchase price with the seller because the lender will only grant a loan for the appraised worth of the property.
How does property appraisal impact your home loan application?
Applying for a home loan is an exciting step towards owning a property, but the process can be overwhelming due to the various requirements and criteria set by the bank. One critical aspect is the property’s appraisal value, which ideally should be higher than the sale value. If the appraisal comes in lower than the sale price, it can negatively impact your home loan application. The lender will only approve a loan for the appraised value of the property, which may be less than the sale price. In such cases, you may need to negotiate with the seller to lower the sale price or pay the difference in cash.
How does property appraisal help home buyers?
Every day, millions of people apply for home loans, aware that completing the required paperwork for the bank is a critical step in the process. Property appraisal documents are essential and beneficial for property buyers in several ways. They are considered a major milestone when applying for a property loan, as they provide an objective evaluation of the property’s value and help ensure fair mortgage rates. Property appraisal provides valuable information to home buyers, such as the accurate property value, fair mortgage rates, and the ability to avoid overpaying for a property. It also helps in negotiations between the buyer and seller, making it a crucial step in the home buying process.
The Runwal Group provides significant information on the development potential of a property, which can be useful for property appraisal purposes. As a developer, the Runwal Group is aware that home appraisers use different techniques to determine a property’s value, including the sales comparison approach, the income approach, and the cost approach.
Conclusion:
Inference is that property appraisal is a crucial aspect of the property buying process, providing an unbiased assessment of a property’s market value. As discussed above, the two primary methods used in property appraisal are the Comparative Market Analysis (CMA) and the Income Capitalization Approach, both of which have their unique advantages depending on the type of property being evaluated. Property appraisal impacts home loan applications, and buyers must ensure that the appraisal value is higher than the sale price to avoid issues during the loan approval process.
The Runwal Group provides valuable information on a property’s development potential, which can be beneficial for property appraisal purposes. Overall, property appraisal provides buyers with essential information that enables them to make informed decisions and avoid overpaying for a property.
