What is an Appraisal?
Are real estate appraisals really necessary?
Does an appraisal include an engineer's report or
whole house inspection?
Is there anything I can do to speed up the process?
What constitutes a typical appraisal?
What is the market approach?
What is a comparable sale?
What is an arms length transaction?
What is market value?
||What is an Appraisal?
||The Professional Real Estate
An appraisal is an objective estimate of the value
of an adequately described piece of property, supported
by the collection and analysis of relevant, factual
data and is made by a person who has sufficient
knowledge, training and experience to accurately
estimate its value.
||Are real estate appraisals really
||The importance of a Professional
Real Estate Appraisal
Because much private, corporate and public wealth
lies in real estate, the determination of its value
is essential to the economic well-being of society.
It is the job of the professional appraiser to determine
these values by gathering, analyzing and applying
information pertinent to a property.
Unquestionably, the professional opinion on the
appraiser, backed by extensive training and knowledge,
influences the decisions of people who own, manage,
sell, purchase, invest in and lend money on the
security of real estate. And because the appraiser
is trained to be an impartial third party in the
lending process, this professional serves as a vital "check
in the system, " protecting real estate buyers from
overpaying for property as well as lenders from
overlending to buyers.
||Does an appraisal include an engineer's
report or whole house inspection?
||Appraisal versus property
The appraiser is not a home inspector, engineer,
architect, electrician, plumber, lawyer or land
surveyor. The appraiser walks through the house
to get an idea of the general condition and room
count. An appraisal is not a guarantee of condition.
An appraiser will ask about any visible problems
and those which may not be visible and will do their
best to gauge any impact on value attributable to
those problems. You are encouraged to seek the advice
of an expert if you have any questions regarding
the structural or mechanical aspects of the property.
||Is there anything I can do to speed
up the process?
|| The following items, if available,
will help your appraiser to provide a more accurate
appraisal in a shorter period of time:
A survey or Real Property Report of the house and
property, a copy of any current purchase agreement
on the property, a deed or title report showing
the legal description, a recent tax bill and recent
assessment notice, a list of personal property to
be sold with the house (if applicable), a copy of
the original plans and specifications, the date
and purchase price you paid when you purchased the
property, a list of recent improvements and cost
as well as any other information you feel may be
||What constitutes a typical appraisal?
|| The appraisal process
The appraisal process is an orderly and concise
method of reaching an estimate of value. The process
has six major steps which include: definition
of the problem, preliminary survey and appraisal
plan, data collection and analysis, application
of the applicable approaches to value, reconciliation
of value indications, final estimate of defined
value. This process assists the appraiser in reaching
a sound conclusion. In most residential appraisals,
particularly those of single or two family dwellings,
the direct sales comparison or market approach
best reflects the actions of buyers and sellers
and is the most convincing and defendable approach
||What is the market approach?
|| The market or direct sales
comparison approach to value
The market or direct sales comparison approach to
an estimate of value is a process of comparing market
data, that is, prices paid for similar properties,
prices asked by owners, and offers made by prospective
purchasers or tenants willing to buy or lease. Typically,
a comparison grid is used and adjustments are made
to each of the comparable sales used for major differences
between the comparable and the subject property
for such items as location, gross living or building
area, lot size, condition/effective age, market
conditions, degree of remodelling, construction
quality and significant amenities, i.e.: fireplace,
jacuzzi, in ground pool, garage, deck, patio, porch
and central air conditioning etc. In the market
approach, the appraiser attempts to both gauge and
reflect the anticipated reaction by a typical purchaser
to the subject property.
||What is a comparable sale?
|| Comparable sales
A comparable sale is a property that is similar
to the subject property in most respects, is located
in a similar (nearby) location, and has sold recently
at arms length. The selection of comparable sales
is in most residential appraisals, the single
most important determining factor in establishing
value. It is the appraisers responsibility to
adequately research the local real estate market
and determine which comparable sales best represent
the value characteristics of the subject property.
||What is an arms length transaction?
|| Arms length transaction
An arms length transaction is one in which both
seller and purchaser act completely independently
of each other and have no connection or relationship
to each other.
||What is market value?
The most probable price which a property should bring
in a competitive and open market under all conditions
requisite to a fair sale, the buyer and seller, each
acting prudently, knowledgeably and assuming that the
price is not affected by any undue stimulus. Implicit
in this definition is the consummation of a sale as
of a specified date and the passing of title from seller
to buyer under conditions whereby: (1) buyer and seller
are typically motivated; (2) both parties are well informed
or well advised with each acting as they consider in
their own best interests; (3) a reasonable time is allowed
for exposure to the open market; (4) payment is made
in terms of cash in Canadian dollars or in terms of
financial arrangements comparable thereto; and (5) the
price represents the normal consideration for the property
sold unaffected by special or creative financing or
sales concessions granted by anyone associated with
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