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What is an appraisal and why?

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A home purchase is probably the largest, single investment you'll ever make. Primary residence, vacation home or an investment, the purchase of real estate is a complex financial transaction.

You'll probably know the Realtor and your Lender. And you'll meet the Title Insurance Company at closing who, in Florida, ensures that all aspects of the transaction are completed and that you get clear title on your purchase.

To most people, the Appraiser is unknown. But, it's the appraiser who checks the value of the property you're buying.

An appraisal is an unbiased opinion of property value, where both buyer and seller are fully informed.
You need an experienced, qualified, professional appraiser. 

The appraiser will provide an accurate opinion of the market of the property you're buying. Here's how it works:-

The Inspection
An appraiser's duty is to inspect the property being appraised to ascertain the true status of the property. Features such as the number of bedrooms, bathrooms and interior & exterior conditions affect value. The inspection includes measuring the improvements to confirm the square footage and taking photographs for the final report. Most importantly, the appraiser looks for any obvious features -(upgrades or defects) which would affect value.

After the inspection, the appraiser uses more than one approach to determine value. They are the Cost Approach, the Sales Comparison approach and, for rentals, the Income Approach.

Cost Approach
For newer homes, the cost approach is the easiest to understand. The appraiser uses information on local building costs, labor rates and other factors to determine how much it would cost to construct a property similar to the one being appraised. This value often sets the upper limit on what a property would sell for.

Sales Comparison
For pre-owned homes the sales comparison approach is used. Appraisers research homes, listings and sales the neighborhood. And they understand the value of certain features to the residents of the area. They know traffic patterns, school zones, busy throughways and they use this information to determine which attributes of a property will make a difference to the value. Then, the appraiser researches recent sales in the vicinity and finds properties which are ''comparable'' to the subject being appraised. The sales prices of these properties are used as a basis to begin the sales comparison approach.

Using knowledge of the value of certain items such as square footage, extra bathrooms, hardwood floors, fireplaces or view lots (just to name a few), the appraiser adjusts the comparable properties to more accurately portray the subject property. For example, if the comparable property has a fireplace and the subject does not, the appraiser may deduct the value of a fireplace from the sales price of the comparable home. If the subject property has an extra half-bathroom and the comparable does not, the appraiser might add a certain amount to the comparable property.

Combining information from all approaches, the appraiser is then ready to stipulate an estimated market value for the subject property. It is important to note that while this amount is probably the best indication of what a property is worth, it may not be the final sales price. There are always mitigating factors such as seller motivation, urgency or ''bidding wars'' that may adjust the final price up or down. But the appraised value is often used as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. The bottom line is: an appraiser will help you get the most accurate property value, so you can make the most informed real estate decisions.