Real Estate Appraisal

 

Real estate appraisals are professional opinions of a property's value, often used in transactions like buying, selling, or refinancing a home. Appraisals are conducted by licensed professionals who assess a property's characteristics and market conditions to determine its fair market value. 

 

Here's a more detailed explanation:

 

• Purpose of Appraisals:

​​

Appraisals are used for various reasons, including:

​

• Mortgages: Lenders use appraisals to ensure a home's value justifies the loan amount. 

​​

• Property Sales: Appraisals can help determine a fair listing price or guide buyers on whether an offer is reasonable. 

​

• Tax Assessments: Appraisals can help determine property taxes. 

​

• Estates and Divorces: Appraisals can help determine the value of assets during estate settlements or divorces. 

​

• How Appraisals Work:

​​

• Third-Party Assessment: A licensed appraiser conducts a thorough inspection of the property's interior and exterior, and analyzes market data. 

​

• Market Value: The appraiser uses various methods, such as the sales comparison approach (comparing to similar properties) or the cost approach (estimating the cost to replace the property), to determine the fair market value. 

​

• Appraisal Report: The appraiser prepares a detailed report outlining their findings, including the assessed value and the reasons for the valuation. 

​

• Importance of Appraisals:

​​

• Fair Value: Appraisals ensure a fair value for both buyers and sellers.

 

• Protection for Lenders: Lenders use appraisals to protect their investments by ensuring the property's value aligns with the loan amount. 

​

• Legal and Financial Matters: Appraisals provide a documented opinion of value, which can be used in legal and financial matters.

​

Three Types of Appraisals

 

The three primary types of appraisals are based on three distinct approaches: Sales Comparison, Cost, and Income. The Sales Comparison approach values a property based on recent sales of similar properties. The Cost approach estimates value by adding the land value and replacement cost of improvements, minus depreciation. The Income approach values a property based on its potential income stream.

 

Here's a more detailed look at each approach:

 

• Sales Comparison Approach:

This method, also known as the market approach, is commonly used for residential properties and involves comparing the subject property to similar properties that have recently been sold. Adjustments are made for differences between the subject property and comparable sales, such as size, features, and location. 

 

• Cost Approach:

This approach is often used for unique properties or those with limited comparable sales data. The appraiser estimates the cost to replace the building, adds the value of the land, and then subtracts depreciation. 

 

For a standard 2,000-square-foot home in Oregon, expect total home construction costs between $500,000 and $700,000, excluding land and permits, according to www.portlandrealestate.com.

 

• Income Approach:

This approach is commonly used for income-producing properties, such as apartment buildings or commercial properties. The appraiser estimates the potential income that the property can generate and then applies a capitalization rate to arrive at the property's value. 

 

In real estate, a capitalization rate, or cap rate, is a key metric used to estimate the potential return on an investment property. It's calculated by dividing a property's net operating income (NOI) by its market value. The resulting percentage indicates the property's annual income as a proportion of its value.