What is an appraisal in Real Estate? If you’re buying or selling a home it’s a concept YOU need to understand…. Even if it’s as boring as it sounds…
Hey everyone, welcome back! I’m Lindsay, with the Wise Move AZ Team at RealtyONE Group. If you want to stay up to date on all things Anthem and Real Estate then you’re going to want to subscribe to our YouTube Channel! Pro Tip: You’re also going to want to hit that little bell icon while you’re there so that you’re the first to know when our new videos are posted every single Thursday!
If you’re thinking about buying or selling a home you may have questions about the appraisal process. As your Anthem, Arizona REALTOR®, I have been involved with my fair share of appraisals, so I will happily give you an idea of what’s typical here in Arizona, and how it impacts you, regardless of which side of the transaction you’re on!
It is so important to us that our clients understand the appraisal process and what to expect early on. Now, I know, appraisals probably aren’t the sexiest or most fun topic but stick with me! I promise to give you the information you need and to keep it short, sweet, and to the point.
So first things first…
What is a home appraisal?
Simply put, an appraisal is the process of developing and communicating an opinion of the value of a home or other property. Yup, that’s it, an opinion of value. This opinion is given by someone called, ready for it….an appraiser! Okay, you probably could have guessed that.
Why do we need appraisals?
Typically, we need appraisals when the buyer is getting a loan to purchase the property. The appraisal is typically ordered by the lender, and the goal is to ensure that the value of the home is sufficient to cover the debt. Makes sense right? The lender wants to make sure that they are making a safe investment in you and in the property.
It is important to note that just because a buyer is paying cash doesn’t mean there won’t be an appraisal. Even a cash buyer is entitled to conduct an appraisal during their due diligence period.
How are appraisals conducted?
There are three methods used to estimate the market value of a property. These include:
- The Direct Sales Comparison Approach
- The Cost Approach
- The Income Approach
Direct Sales Comparison Approach
The direct sales approach is the most common method used by appraisers to estimate the value of homes here in Anthem. This method compares recent sales prices of similar properties. Adjustments are made for things like seller concessions, time, financing, and physical differences in the properties.
The Cost Approach
The cost approach is based on reproduction or replacement costs of the improvements, less depreciation, plus the value of the land. This is typically used for new construction or service properties like churches or post offices. So, unless you’re planning to buy a church in Anthem you probably won’t need to know much more about this method.
The Income Approach
Lastly, the income approach is commonly used for investment properties like whole apartment buildings, office buildings, and shopping centers. If you are looking into this type of purchase and need help understanding this method of valuation in more detail, let me know and I will happily connect you with a commercial agent!
Okay, enough with the boring stuff, right?! Let’s get to the point, Lindsay!
How does the appraisal impact you?
If you’re buying a home you need to know that if the appraisal does not come back at or above the purchase price, it may be difficult, if not impossible for you to get your loan. The other thing you need to know is that you are more than likely going to be paying for the appraisal. You’ll be out of the pocket the appraisal expense, even if the appraisal comes back below the purchase price. Your REALTOR® may be able to help give you an idea of whether the appraisal is likely to come back at or above purchase price by showing you recent comparable sales. That being said, your REALTOR® is probably NOT an appraiser (I’m not!).
If you’re selling your home you will want to factor the appraisal into the pricing of your home. What I mean is that you want to ensure you are pricing your home fairly based on the current market and similar homes that have recently sold in the area. You don’t want to go under contract, and take your home off the market, just to find out the appraisal hasn’t met the purchase price. If you are worried about the appraisal, work with your REALTOR® to put together a package to justify how you came up with the price of the home. This won’t guarantee anything but it can certainly help.
So what do you think? Do you feel more prepared to tackle the home appraisal process? If so, throw me an “I’m ready!” in the comments below.
I know appraisals aren’t the most fun, but they are important, so thanks for sticking around!
See YOU, next Thursday!