What is the purpose of a real estate appraisal?
What’s the purpose of a property appraisal in real estate?
A real estate appraisal is when a real estate agent estimates the value of your property. When your agent is undertaking an appraisal, they’ll estimate your property’s prospective selling price in the current market. They consider a lot of aspects to reach their appraised value, including:
The property size.
The floor plan, such as the number of bedrooms and bathrooms.
The property’s condition, street appeal, structure and features, including fixtures, fittings and exterior.
The local area and location, including how accessible it is to essential amenities like schools, shopping centres and public transport.
School zone boundaries.
Current local property market conditions and recent sales data (within the last 90 days) to see how it compares to similar properties in your local area. The closer they can match it with similar properties, the more accurate the appraisal. But it’s always beneficial to remember that no two properties are the same, so all appraisals are generally subjective.
Wider real estate market trends.
The time of year you’re hoping to sell the property.
The current economic environment, including interest rates.
When listing your property, you’ll want to ensure you get a rough estimate of how much your property is worth before selling it. You can do so by getting a free market appraisal from a local real estate agent. If you’re looking for a definitive value, you can pay to get a professional valuer to come to your property and give you a property valuation.
Generally, your real estate agent will base your appraisal on future prospects. This is because you’re likely to list the property at least a month after getting your property appraisal. This means the direction of the market (e.g. if prices are going up or down) will affect your agent’s estimated value. They’ll be able to tell you roughly how long your home will take to sell based on the current climate, which is an added bonus. For example, the appraisal report may highlight that it’s not the best time to sell.
Other reasons to appraise your property include investigating how much value renovations can add to the property’s potential market value. In turn, an appraisal can help homeowners identify ways to add value to their property before selling. Appraisals can also help you determine your home’s major selling points and how to highlight them when it hits the market so that your property ultimately sells for more money.
However, it’s important to remember that a property appraisal is just an estimate and has no legal standing. Most real estate agencies offer this as a free service.
What does a property appraisal involve?
We mentioned above the value of a real estate appraisal and what it entails. But here’s a more in-depth guide to precisely what a real estate agent will focus on to determine your property’s estimated market value.
Real estate appraisal considerations:
The property’s size. This includes the block size, the land structure, the size of outdoor areas (and whether there’s a garden, entertainment area or balcony), parking, key features and the size of critical rooms in the home, like the living area and main bedroom. They will compare these measurements to similar properties in your local area and focus on what potential buyers are searching for.
The number of bedrooms, including their size and whether they include built-in wardrobes, an ensuite or stellar views.
The local council, zoning or planning restrictions.
Fixtures and fittings and whether they’re included in the selling price, like decorative light fixtures, blinds and curtains. They’ll also look at the condition of these features.
Location, location, location. The agent will focus on street appeal, local amenities, public transport and school catchment areas. But rest assured that sometimes quiet streets and rural locations are more desirable, depending on the location.
Property’s structure. The general rule of thumb is the stronger the structure and the better the condition, the higher the property price. Most potential buyers will request a building report, and if it needs structural work, they’ll inevitably ask for a lower price.
Ease of access, including access to the front door and parking. This is particularly important if your key buyers are a young family or elderly couple. The agent will be able to advise you on this.
Home staging. Yes, you want your home to make a great first impression, so presentation matters. If an agent suggests that home staging will give you an advantage, take them up on that suggestion.
The current market conditions and what’s recently sold in your area to determine the property’s value.
During their appraisal, the real estate agent will analyse your property to increase its value. They can guide you on what local buyers are looking for and what critical updates will add value to your property. In this instance, weigh up the cost versus the higher selling price.
What’s the difference between a formal property valuation and a real estate appraisal?
Here are the principal differences between a formal valuation and a property appraisal in real estate:
Real estate agents usually undertake property appraisals, whereas a qualified valuer with formal qualifications and training in the field conducts property valuations. They take all features into account, such as:
Location.
Building structure and conditions.
Building faults.
Features of the home.
Caveats or encumbrances on the property.
Local council zoning.
Generally, a qualified valuer uses three methods to determine the estimated value: direct comparison, capitalisation or summation. They will inspect your property, analyse the market and provide you with a detailed report that has legal standing.
Home appraisals are used as a guide to pricing and are an educated judgement. However, a property valuation is a legally binding written report crafted by a professional valuer that can be used to obtain a definitive value. Valuations can be used for property settlement, dispute resolution, obtaining a home loan for financing, and establishing the value of deceased estate settlements.
Property appraisals are free of charge, while property valuations incur a fee.
A bank or financial institution commonly requires a property valuation service before approving a home loan. It is also used by buyers and sellers wanting an independent opinion prior to pre-purchase or pre-sale, family or partnership settlement, capital gains tax, and in some instances, building insurance.
Related: What is a property valuation, and why should I get one?
What’s the difference between a bank appraisal and a property appraisal?
As part of your home loan approval process, your bank or financial institution will hire an independent licensed professional to conduct a property valuation. This is so they can determine the property’s worth and how much money they should lend you. Generally, bank appraisals are more beneficial to mortgage lenders than potential buyers, as it also helps them determine how much they can resell the property if the buyer can’t make their mortgage repayments.
On the other hand, a real estate appraisal is often a free service where a real estate agent gives you a rough estimate of your property’s market value. It’s both figure-based (considering recent sales data) and based on the property itself.
Why should I get a property appraisal?
A property appraisal is a perfect place to start if you’re planning to sell your home or investment property. You can get a feel for the local market and discover realistic pricing. Knowing your property’s value is one of the wisest financial decisions. An excellent real estate agent will know the local area like the back of their hand and have plenty of experience selling comparable properties.
