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November
20

Understanding an Appraisal

 

Q.  Is a Comparative Market Analysis an appraisal?

A.   Appraisals and Comparative Market Analysis are similar but have different purposes.

When a home is sold, the buyer's mortgage lender will order an appraisal of the 'subject' property. This is done to make sure the home is worth the amount being mortgaged.

A Comparative Market Analysis (CMA) is the tool used to determine a listing price for the subject property. It, too, compares the subject to several other recent sales and listings to arrive at an asking price for the home. The difference is that a CMA is a tool of the seller or the seller's agent, not the lender, and it is less detailed. Well-researched CMAs net list prices very close to appraised values, but lenders do not accept them as proof of the property's worth.

 

Appraisal Overview

   ·         Appraisers are licensed.  

   ·         The appraiser should be an objective party.

   ·          The buyer assumes the cost of an appraisal.

   ·          Appraisals are somewhat subjective; four different appraisers may arrive at four different property values.

Appraisal Report

Appraisal reports are quite detailed.  A few major components are:

  • A detailed description of the subject property and comparison to three local comparable properties.
  • Evaluation of the local real estate market.
  •     Appraiser statements noting factors, which contributed to, diminished value (poor access, obvious disrepair, etc.).
  •     Serious disrepair or structural damage notations.
  •     Community environment (development, condominium complex, stand-alone, rural, etc.).

Appraisal Methods

One of two methods generally used to appraise residential properties are:

  •     The Sales Comparison Approach: This estimates value by comparing the subject property to "comps" in the area (recently sold comparable properties, similar in size, location and characteristics). Three properties are usually evaluated, and adjustments are made to their selling prices to accommodate for property differences. Square footage is multiplied by the value per square foot; value is added for additional subject home features. Additional amenity values are subtracted from comps. The resulting price is one the comp would have sold for if it were the same as the subject home.
  •      The Cost Approach: This is most accurately used to appraise new

construction. Building costs (present and known) are calculated to arrive       at a replacement value for the subject home.

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