Understanding The Basics Of a Home Appraisal

Understanding the basics of a Home Appraisal

Whether you’re a homebuyer wanting to finance a new home, or a homeowner seeking to refinance your existing mortgage or obtain a home equity loan, a home appraisal is an essential step. In this blog, the local real estate agents at Better Properties Eastside cover the basics.

What Is a Home Appraisal?

A home appraisal is an estimate of a property’s fair market value. The appraisal is conducted by an appraiser – a state-licensed professional who evaluates various data to arrive at a valuation. Here are the main criteria comprising an appraisal:

  • The home/property itself
  • Location
  • Current market value of similar properties
  • Amenities featured in the home

How Is a Home Appraisal Done?

There are three methods an appraiser can use to execute an appraisal. The “Sales Comparison” method is by far the most commonly-used for a residence/home. The “Cost Approach” and “Income Approach” are mainly associated with income/commercial property appraisals.

Sales Comparison

This is the most common solution for appraising a home. The appraiser identifies several recently-sold properties (i.e. within the last six months) in the neighborhood that share similar characteristics with your home. For example, similar square footage, number of bedrooms/bathrooms, age, lot size, and property condition. Using this information, the appraiser then compares your home with these other homes, and creates an appraisal.

Cost Approach

The cost approach utilizes a static formula to create an appraisal: value of the land (when vacant) + cost to rebuild the structure as brand-new, minus the accrued depreciation the structure suffers compared to a brand-new building.

Income Approach

This method centers on “capitalization”: the process of estimating a property’s present value based on its future income stream. The appraiser takes into account a variety of factors, some of which are used in other appraisal approaches, and creates a valuation that he believes is accurate today based on the property’s future/potential earnings.

Who Owns My Home Appraisal?

Even though you (the homebuyer) pays for the home appraisal, your mortgage company is the rightful owner. This is because the mortgage company commissions the appraisal on your behalf, and the appraiser lists the mortgage company as the appraisal’s owner. However, it is your right to receive a copy of the appraisal if you so choose.

When Is a Home Appraisal Necessary?

There are lots of reasons why a home appraisal is necessary. From the standpoint of buying a home, a credible lender won’t lend money without an appraisal. Other reasons to secure a home appraisal include:

  • For a seller to determine his home’s value prior to listing, and use as a negotiating tool when selling
  • To refinance/obtain a home equity loan
  • Contesting high property taxes
  • A homeowner wanting to protect his/her rights in a case of eminent domain
  • To settle an estate left in a will
  • As a component of a divorce settlement
  • To establish a replacement cost for insurance purposes

Work With The Real Estate Experts In Seattle

Better Properties Eastside knows Seattle real estate inside and out. It’s what we love doing and it’s what we do best. If you’re looking to buy or sell a home in Seattle, contact us today and leverage our many years of real estate expertise.

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