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In the buying and selling of property, it is critical both for the buyer and the seller to establish the true value of the property. If mortgage financing is being used for a transaction, it is also equally important for the lender to establish a true market value so that he can determine how much lend on the mortgage. The best way to obtain a result that is fair to all parties concerned is to engage the services of an independent and impartial expert to carry out the valuation. You should understand fully the process of appraisal and how an appraiser goes about doing his job.

Appraisers are professionals who are licensed by the states in which they operate and who have been through a proper course of study and training. To preserve the impartiality and the objectivity of the opinion that they render, they will normally have no connection with either the buyer or the seller. A mortgage lender will accept the result of an appraisal commissioned by the buyer or seller provided the appraiser is acceptable and the appraisal is not more than six months old

Appraiser reports are often quite detained and take the following factors into consideration:

-a detailed description of the property and its features and a comparison with three similar properties preferably in the same area
-a critical evaluation of the neighborhood and local real estate market
-factors which lead to a diminution of a property value such as a poor access road or a bad state of repair
-significant structural damage
-a report on the community in which a house is located go to such factors as local amenities and conveniences

Based on this report and his findings, the appraiser will use one of two techniques to value the house. The first technique is called the Comparison sales approach and estimates the value by comparison to three similar properties in the same neighborhood that are similar to the property being valued. The properties used for comparison called “comps” in real estate jargon cannot be identical in all respects to the property being appraised and adjustments have been made for the plus and the minus points. Once these adjustments have been made, the appraiser arrives at the value the comp would have sold for and uses this value as a basis for the house under appraisal. The second technique is called the cost approach and uses replacement costs as the basis of valuation. In other words, the appraiser works out what it would cost to build the house today using the current prices of materials and labor. This approach is more suited to new houses.

There are some points you should keep in mind about the appraisal:

-not all be built up area would be considered in the valuation for instance an unfinished basement or a basement that is not up to scratch
-the costs of many improvements such as a refurbished kitchen of a new roof would be ignored and full value will not be given by the appraiser.

Because an appraisal is a function of the appraiser’s judgment, no two appraisals would be identical and there may be variations in the appraised value. If your chosen are properly licensed appraiser, these variations can be ignored as there would be no element of partiality or bias in the valuation.

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