HUD Articles

PROFESSIONAL APPRAISAL

Nothing determines the sale price of a piece of real estate but the price at which it sells. Houses are not same-priced identical cans of tuna on the grocery store shelf or shares of stock valued and traded every day on the stock exchange.

Real estate appraisal (“property valuation”) is the process of arriving at developing a perspective of value for real property. This is the market value — i.e., what a willing reasonable buyer would pay for the property to a willing reasonable seller. Real estate transactions generally require assessments because they happen infrequently, and every real property is unique in features and characteristics.

An appraisal helps in various decision points. The seller can use the appraisal as a basis for pricing. The buyer can use it as a gauge on which to base an offer. Lenders use appraisals to know how much money to credit to their borrowers.

The important factors in a house appraisal are:

Dwelling type (e.g., one-story, two-story, split-level, factory-built)

Features (including design) — materials used and the kind of structure present and how they were built

Improvements made

Comparable sales

Location — type of neighborhood, zoning areas, proximity to other establishments

Age of property

Size

Depreciation

Condition, of course, is a crucial factor in valuation. Location is also a factor; however, as property cannot change location, upgrades or improvements to a residential property often can enhance its value.

A professional appraiser should be a qualified, disinterested specialist in real estate appraisals, with expertise in your region. His or her job is to determine an estimated value by inspecting the property, reviewing the initial purchase price, and weighing it against recent sales with the same purchase price.