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Cody Battershill

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Real Estate Terms Defined: Appraisal

What is an “Appraisal” in Real Estate?what is an appraisal in real estate?

An appraisal is the value of a property determined by a professional appraiser. This person will make an impartial estimate or opinion of value based off relevant features, location and other characteristics of a property.

Appraisals are in written form to allow the appraiser to track relevant data pertinent to evaluating the worth of a home.

Mortgage companies typically require that an appraisal of a property is done by a licensed, third-party professional before buying or selling to determine whether there’s enough value in a house to provide loan security.

A quick example of an appraisal is when the City of Calgary sends out appraisers to determine the value of homes in order to evaluate how much property tax to assess to each owner.

More Real Estate Terms

Determining the Appraised Valueinvestment property real estate home money coins cash

Methods of determining the appraisal value include several things such as:

#1 – Comparable sales – how much homes with similar features are selling for in the neighbourhood should give an idea as to what the home value is

#2 – Cost approach – where the market price of a property is equal to the cost of the land and construction minus depreciation

#3 – Income approach – where investors determine the appraised value by taking the net operating income and divide it by the capitalization rate which shows the potential rate of return on an investment

#4 – Highest and best use approach – the best probable and legal use that is possible, reasonably supported, financially feasible and results in the highest value of a property

*Professional appraisers in residential real estate typically do an in-depth evaluation of homes features and a comparable sales analysis to determine the market price.

Example: Comparable Sales Approachhome search real estate online computer monitor

In the neighbourhood where a house is located, the appraiser has found two different properties that have sold within the past 3 months for $500,000 each. The house in question has very similar square footage and the same number of bedrooms and bathrooms.

However, what it doesn’t have is a three-car garage like the other two properties did – there’s only a two-car garage. The lot itself is also slightly smaller than that of the other two solds. Therefore, the property being appraised is valued at $470,000.

Some things appraisers examine:

  • Total square footage of the house and property
  • Layout and functionality of the house
  • Number of bedrooms, bathrooms
  • Condition of the exterior / interior
  • Renovations done on the home
  • Location of the property
  • Age and quality of construction

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Typically, when someone goes to sell their home, an appraisal is done by their licensed real estate agent / REALTOR® of choice. This selected professional will examine those characteristics mentioned above in accordance with a home inspection to determine the market value..

Selling your home? While there’s not much you can do about your lot size or property, you can educate yourself on how to create more appeal for home buyers.

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