What Are the Different Real Estate Appraisal Methods?
When you’re applying for a mortgage, most—if not all—lenders will require you to hire an appraiser to determine the value of the home and property you want to purchase. Not only does this allow the lender to know how much the property is worth to set a loan amount, but it also lets you know if the home you are interested in buying is over or underpriced. For example, if the home you want to buy is listed at $400,000, but the home appraisal comes back at only $300,000, the property is probably grossly overpriced.
Home Appraisal Methods
There are two primary appraisal methods when it comes to residential real estate:
Sales Comparison Approach – This appraisal method involves comparing the home to a number of similar homes in the area that have sold recently called “comparables.” The appraiser will collect a variety of data on the comparables, including public records, sale prices, square footage, amenities, date of sale, and more and place a value on the home and property. The basic idea behind this approach is that the buyer shouldn’t pay more for a property that is comparable in value to a substitute property with similar amenities and features.
Cost Approach – This is an appraisal method that is more commonly used on new properties and evaluates the home based on its reproduction cost. So, it is a value based on how much the house would cost to rebuild if it were destroyed. Then, the land value and depreciation of any improvements is assessed and put toward the home appraisal. This method is a very useful approach when appraising newer properties, but it is considerably less reliable for older homes.
What to Do If Your Home Appraisal Comes Back Low
If your home appraisal comes back lower than you were hoping, the first thing you need to do is try to figure out what could have caused it. Sometimes, it’s a result of factors the homeowner can correct such as home maintenance, repainting, and repairs. Often, once these issues are taken care of, the appraiser can revisit the property and adjust the appraisal based on the improvement of the home.
Of course, you may also order a second appraisal if you believe the first one was inaccurate due to the inexperience of the appraiser or other factors. It’s possible a second home appraisal could turn out a different value for the property; however, if this isn’t the case, the home purchase may be at a standstill unless the homeowner is willing to lower the price.
Selecting an Experienced Home Appraiser
For over two decades, homeowners and potential buyers have trusted Coakley Realty for home appraisals in Maryland, Virginia, and Washington, DC. Our experienced staff can make your home appraisal process quick, easy, and convenient so you can get into your new home sooner.
If you’re interested in learning more about our home appraisal services in the Metropolitan area, contact Coakley Realty today!