If you’re looking to purchase or sell real estate, you’ll most likely need the services of a real estate valuation expert. Their job is to determine the real value of the property in question. To objectively appraise the real market value of the property, real estate valuation experts investigate several economic, technical, and legal parameters, and then apply them to the local real estate market at a particular date or period.
Highly qualified and experienced VERTEX experts explain that determining the value of real estate can help you make the right decision whether you’re selling, buying, or upgrading. Accurate property valuation can be performed by three types of real estate consultants: appraisers, experienced brokers and real estate economists.
In many cases there aren’t restrictions on who can do the valuation. The only exception that requires a license issued by the state are federally related transactions. In such cases, professional real estate appraisers must have a state certification issued by the Appraiser Qualifications Board (AQB). This state agency establishes the criteria and education requirements necessary to become an impartial appraiser with sufficient technical, economic, and financial knowledge and experience to perform the evaluation in an objective and accurate manner.
What are the main reasons for getting real estate appraised?
Real estate valuation can be either voluntary or obligatory, depending on the particular case. Often it’s the financial institution that requests it. When it comes to owners, the usual scenarios that require real estate appraisal might be:
● Sale or purchase.
● Inheritance/succession.
● Investment.
● Donation.
You may also need an expert valuation for professional reasons. In the case of commercial real estate appraisal, a hired professional or team of experts work together to determine the value of a property. This may be done for the purpose of:
● Financing.
● Getting a loan.
● Risk management.
● Mortgage registration.
● Foreclosure.
What methods are used for real estate valuation?
As you can conclude from the various reasons listed above, not all valuations are the same. Some require a higher level of detail depending on the client’s needs, and the scope of research. In a typical case, an appraiser or another valuation expert is hired to determine the value of a certain piece of real estate. Most of them use a combination of these three approaches to achieve the most accurate estimate:
- Sales comparison. The value is estimated by comparing the property in question with other recently sold properties in the same area, usually within a mile. The property whose value is being estimated is usually compared to at least three other similar properties that were sold within the previous six months. Certain adjustments are usually made as no two properties are exactly the same, so sales conditions, physical features, and property rights are usually taken into consideration.
- Cost. This approach estimates the value of the land as if it were vacant, determines the cost of construction of the building, subtracts any depreciation due to the physical condition of the property from the construction cost, and calculates the total value.
- Incomeapproaches are based on estimating the potential income that the property could produce. Based on market rates, a potential gross income is calculated, and then the cost of potential losses or the cost of vacancy is subtracted, as well as operating expenses. This determines the net operating income. This estimates the price an investor would pay for the property that produces the calculated income.
What is a property valuation report?
A property valuation report is a document assembled by a professional real estate valuation expert that contains their expert assessment of the market value of the examined property. This type of document contains general information like the date of inspection, location, and description of the property, as well as the purpose of evaluation and the description of the local market.
The methodology used to assess the property value is written in the report, as well as the determined market value, forced sale value, and insurable value. The report may also contain the cadastral plan and a listing of all comparable sales in the area.
The purpose of this kind of detailed evaluation is to help you get the most out of your real estate endeavors and provide you with peace of mind knowing that money “wasn’t left on the table” and everything was done thoroughly to well-established professional standards.
