Real Estate Appraisal Information
Real estate appraisals are an important part of buying and selling houses -- much of the real estate market depends on appraisals and their accuracy. There are appraisal firms that specialize in the work, although some banks have their own appraisers. Appraisers can specialize in certain types of property, such as commercial real estate, and should not be confused with assessors, who perform similar activities for the government for tax purposes.
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Definition
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A real estate appraisal is designed to give an accurate market value for a specific property. This does not mean the appraisal creates the price for which the house is sold -- only an approximation of its worth to the real estate market. The appraiser does this by comparing the property with other properties nearby that have recently sold, analyzing specific similar aspects and averaging prices to create a result.
Factors
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Some factors are more important to appraisals than others. For instance, it would do no good comparing a property with two bedrooms to sold properties with three bedrooms. Size is very important, as is location -- another key factor in market prices. Age and quality of materials are important, as well. Appraisers must also use their own knowledge of local areas and house desirability.
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Uses
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Appraisals are used primarily by lenders when they are considering loan applications. An appraisal will show what the house is worth on the market. Lenders care because they will receive the house as collateral against loan defaults. If the loan does default, they want to be sure they can sell the house for as much as the loan is worth. If the appraisal shows the house is lower in value than the loan, lenders will reconsider making the loan at all.
Variance
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There is great variance in real estate markets across the United States, so every appraiser must approach projects with slightly different factors to consider. Appraisers must have a state license in order to practice and are held to a strict standard of ethics. Many appraisers are pressured to skew market values one way or the other in their reports -- this may also lead to variance, even in the same area.
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