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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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In reality, about the only thing in common between a real estate assessment and a real estate appraisal is that they are both used to arrive at a value for a given property. Because they are used for different purposes and calculated differently, they will often be little similarity between an assessed value and an appraised value.

Assessment is the process of establishing a property value on the basis of which property taxes are levied. It is carried out by inspectors from the local authorities who may or may not be qualified appraisers and rely extensively on public records. As most of us know, public records are rarely up-to-date and this will be reflected in the assessment. If you have reason to believe that your house has been overvalued resulting in payment of excess property tax you can prefer an appeal for a review of the assessment. The assessed value has little relevance for other purposes and is generally not acceptable as a basis for commercial real estate transactions.

The value that is generally use as a basis for actual transaction whether a sale or a purchase or a mortgagee is the appraised value established in an appraisal carried out by a certified appraiser. For instance, home sellers may get an appraisal done in order to establish an asking price though any competent realtor will provide this. Lenders will almost always require an appraisal to be performed by an appraiser on their approved list.

Factors that appraisers take into account. The most critical factor that determines the value of a house is the location. Location together with other basic factors such as built up area, age, number of rooms, condition and so on affects the valuation significantly. The appraiser will also take into account any home improvements that have been carried out such as flooring, tiling, kitchen refurbishment and so all though these may not have a major impact on the value.

Methods of appraised valuation: appraisers generally begin the process of valuation with a thorough inspection of the home and neighborhood. Once he has taken note also the pros and cons of the property, he can use any of the following methods or a combination thereof:
- Cost. He will establish what it would cost to build a similar home from scratch taking into account factors such as cost of material and local labor. This would actually represent the high end of the valuation since your home is not brand-new
- Sales value. In this approach the appraiser gets to know the strengths and weaknesses of the neighborhood and then examines the prices at which local properties have recently sold to provide a base for establishing a sales value
- Rental value. In this approach the appraiser establishes the rental value of a similar income property and color using discounted cash flow is, establishes the net present value of the home.
What he would do in practice is to use a combination of these methods and then exercise his judgment to arrive at a final value.

Remember at all times that the appraiser is a quantified independent professional who can be counted on to render an impartial opinion, no matter on whose behalf he has been employed.

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