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Equal Housing
Opportunity
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Did You
Know? |
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A move for job
purposes may be tax deductible?..consult your accountant.
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The Appraisal
An appraisal of real estate is the valuation of the rights of ownership. The appraiser must define the rights he intends to appraise.
The appraiser doesn't create value. The appraiser assesses the market to arrive at a estimated value of a property. The appraiser considers
the site and amenities of the property as well as the physical condition. An appraiser may spend limited time actually inspecting the property,
however, that is just the beginning.
A considerable amount of research and collection of general and specific data is compiled by the appraiser before the they arrive at a final
opinion of the value.
Because of the many types of value, such as:
- Fair Market Value,
- Insurable Value,
- Taxable Value
- Value In Use,
there are many considerations to establish the appraisal.
Most real estate appraisals are requested by mortgage companies to assess the property's purchase price for loan purposes. Except for times
of low interest rates when refinancing is very popular, most loans are for the purchase of real estate and ordered after a sale price is negotiated.
Purchasers mistakenly assume that mortgage companies are looking after their interests in the purchase transaction.
The law specifies that if the mortgage company orders an appraisal, the appraiser is responsible only to the mortgage company. Mortgage companies
order appraisals to protect their interest, not necessarily the purchaser's.
Appraisal Methods
An appraisal is defined as an opinion of value of the property or the process of estimating a value. This opinion or estimate is decided by three
usually common practices.
These are:
- The cost Approach To Value.
(What it would cost to replace or reproduce the property and it's improvements as of the date of this appraisal. Minus physical deterioration and
physical and economic obsolescence.)
- The Comparison Approach to Value.
The appraiser uses "bench mark" properties of similar size, quality and location that have been recently sold.
He then compares those to the property being appraised.
- The Income Approach to Value.
This is used for income producing property as opposed to primary residence property. An appraiser assesses the value of income producing properties
according to an objective estimate of what a wise investor would pay based upon the net income the property produces.
Then, after thorough analysis of all general and specific data gathered from the market, a final estimate or opinion of value is correlated.
Why Appraisals Are Ordered?
To settle estates
The IRS may require an appraisal to establish market value of an estate when a death is involved. The heirs usually want a
conservative estimate to limit their tax liability.
To set the insurance replacement cost.
Appraisals for setting the cost of replacement due to fire are usually limited to an estimate of the replacement value or reproduction cost
of the property improvements and does not include the land value itself.This assessment may not be market value. Insurers may order an appraisal
when when an atypical home or structure is involved. Property owners may hire for an appraisal to argue an increase premium by some insurance companies,
especially when the increase results in an unreasonable premium in the opinion of the insured.
To establish just compensation for condemnation
In this case the appraisal may be ordered by the government concerned to assess the value of the property needed for condemnation to clear
the way for public use of the property.The appraiser may also represent the landowner in an effort to argue the fair market value being offered
by the government involved. Sometimes these cases end up in court with both parties putting forth each appraisal. Then each appraiser becomes an
expert witness and defends and supports his appraisal.
To contest high property taxes
This is the most common appraisal other than that ordered by a mortgage company. Property owners sometimes feel that their property is assessed too high,
and order an appraisal to contest the assessment. You must weigh the cost of appraisal to the reduction of perhaps, several years of lower taxes.
Sometimes these appraisals include an appearance in front of the tax board to argue the property owners case. The appraiser must take care not to violate
the rules of the USPAP.The appraiser can not base the appraisal fee on the dollar amount of the appraised value of the property.
For a list of appraisers or to learn more about the process, give me a call and I will be happy to help.
Rick Lockwood, Realtor®
(512) 635-2691
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