Establishing Value

Why a Real Estate Appraisal?
There are many reasons why you need a real estate appraisal. Reduce property taxes, probate, estate planning, divorce settlements are some. The most common one is to obtain a mortgage.

Most lenders are required by federal and state laws and current banking regulations to obtain an appraisal for most loans secured by real estate. As of Jan. 1, 1993, all appraisals made for mortgage loans from federally insured lenders and other federally related transactions must be made by a licensed or certified appraiser.

What is a Appraisal?
An appraisal is an objective supported opinion of value of an adequately described piece of property made by an appraiser who has sufficient knowledge, training and experience to accurately estimate its value. In this detailed and time consuming report, appraisers use comparable sales together with information about the property being appraised, its neighborhood and community along with the local and national economy, to support the appraised value.

Look Objectively not Subjectively
The most important thing you can do when previewing is to look at the house as if empty: four walls, floors and a roof.
Don't let the current owners' furniture and decor influence you.

Important Tip!
If you are buying a house with the owner carrying the paper (loan), it is well worth the cost to hire an appraiser to make sure you don't pay more than it is worth. For your protection many real estate agents will write in a purchase contract: this contract is contingent upon the property appraising for the sales price.

How is Value Established?
The value of a house is based upon recent sales of the similar neighboring homes in the market as well as rentals and listing data. Ideally, appraisers want to use sales of properties of the same size, age, room count, condition and with similar amenities and external influences. This rarely happens though, so adjustments have to be made, based on what people will pay extra for.

Examples: extra square footage, bedrooms, fireplace, upgrading, parking facilities, swimming pool, lot size, location and so on. To help get a better picture, this information is entered on a form, a value for differences is established and comparisons are made to the subject property. A minimum of three verified closed sales with photos are required to establish a value.

Houses Appraise for More When:
- Well maintained inside and out
- Located in a good school district
- Additions are done with the proper building permits
- Additions conform with and fit well into the existing house
- Properties throughout the neighborhood are well maintained
- Not over improved or the largest house on the block
- Style of the house conforms with those in the neighborhood
- Zoning changes are not expected or there is not a mixed use

Remember: Location, location, location.
You can change everything about a house except it's location.

What is Poor Location?
- Located on a feeder street
- Under an airport flight path
- In or near a gang territory
- Center of night life activities
- In a rundown block or neighborhood
- Next to a school or school yard playground
- Next to apartments or commercial property
- In close proximity to a freeway, expressway or railroad
- Next to a gas station, near a municipal garbage or toxic waste dump
- Odors from factories, farms and processing plants are routinely noticed
- The city is affected by the closing of a major employer

Think about Selling - When You are Buying
Location is a big factor in a home's appraised value. This is most notably felt at the time you sell or refinance. What seems like a bargain when you buy might turn into a real headache when you try to sell. Drive around the neighborhood and note any adverse conditions. You may think you can live with something adverse for the price, but when it's time to sell you might find buyers won't.

Important Tip!
Adding onto your house = Always obtain a building permit. A 600 square foot addition built without a permit is given no value on an appraisal. When it is time to sell or refinance, the frustrations of the building permit process will be worth it. Always save copies of the final permit sign offs and keep with your house papers.

Buying a House with an Addition?
Verify that it was built with a permit prior to closing the sale. Don't just accept the sellers word. Get copies of the permits before final sign off. Should you want to refinance or sell at a later date, and the appraiser cannot verify the addition being permitted, no value should be given. The result: no new loan or worse . . . no sale.

Tip: A one bedroom house or condominium doesn't appreciate as well and is harder to sell.

Work with An Agent
An advantage of working with a real estate agent is that they can provide you with sales information of similar properties to better guide you on how much to offer. Your agent can provide recent sales "comps" for similar homes in the neighborhood. Finding the list prices is also important. Comparing the list prices with the sale prices tells you exactly what percentage of the list price sellers are getting.

Click here to find out what homes are listed for sale in the Pensacola area

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