Like various professions, real estate has specialised phrases that occasionally need some explanation to clarify misunderstandings.
One such word is property appraisal, which is often confused with property value. Understanding the difference is essential so you're not left in the dark when lenders or real estate agents start using them.
A property appraisal enables you to sell your property based on educated judgement. This read explains a property appraisal, how it works, and how you can utilise an appraiser to your best advantage.
What Is A Property Appraisal?
A property appraisal is the estimated value of your property in the local market, typically determined by a real estate agent. Although it is not a legally enforceable report, it gives you a reasonable idea of the price you may get for your home in the present market.
Licensed real estate agents are experts at gauging the value of your home as they are the experts in the marketplace.
Your real estate agent estimates your property's market worth by performing a comparative market analysis of similar properties recently sold in the local area. In addition, they factor in the current competition, broader real estate trends, and specific characteristics of your home, such as the building structure, to reach the appraised value.
You will receive a thorough appraisal report from the estate agent detailing their study results and a proposed price range for your house. Nonetheless, a property appraisal is just an estimate and not a definitive value. Typically, real estate agencies offer free property appraisal facilities, but they have no legal standing.
Why Is Property Appraisal Important?
There are several reasons to know how much value your property holds roughly. Here are some key motivations why people usually request a property appraisal:
- Property Worth
An appraisal is a crucial initial step in the selling process. It helps you understand the local market and price guide expectations based on recent sales data of comparable properties in the local area.
An appraisal helps you track changes in the current market and when it is the right time for sellers wanting to list their property on the marketplace. It also helps identify the property's best-selling points and how to make the most of them so you can get more money if you're a seller.
- Impact of Renovations
When considering renovations, an appraisal will help you understand ways to increase your property value and what prospective buyers are willing to spend extra for.
And, if you've recently finished your improvements, it will help you know your property's potential market value.
Who Needs A Property Appraisal?
Suppose you're considering buying an investment property, upsizing or downsizing, looking to shift to another locality, or just keen to know the value of your home. In that case, a property appraisal will benefit you.
In simple words, real estate appraisals are helpful if you're unsure if you should sell your property and are doing your due diligence and research.
It's also ideal if you need help pinpointing the critical selling points of the house and how to highlight them best. For one thing, a property appraisal can, in turn, throw light on how much you can potentially afford to spend on your next home.
It's also beneficial if you're keen to estimate the value that recent renovations may have contributed to your home and methods to increase the current market value of your house.
What Is Involved In A Property Appraisal?
When beginning an appraisal, it's advisable to contact a local real estate agent with intimate knowledge of the area and recent local sales. If you hire an estate agent unfamiliar with the area, they may not have access to recent sales data, and thus give you an unrealistic estimate.
Here is a detailed explanation of the specific criteria an estate agent would use to get an estimated value of your home.
Property's Size and Rooms
This comprises the size of the block and land, the property size, including any outside spaces, parking, prominent features, and rooms like the living room and main bedroom.
Likewise, the agent will consider how many bedrooms there are, how big they are, and whether or not they have ensuite bathrooms or breathtaking views. Again, these will be appraised alongside similar properties recently sold with similar specifications as yours.
Property's Structure and Presentation
The better and stronger the construction, the more expensive the property will be, as it'll reduce the buyer's need to do structural work or improvements.
Likewise, a property with an excellent overall presentation will appeal to buyers and will naturally be appraised higher. House presentation is essential because you want your house to give potential buyers a good first impression. Take an agent up on their offer to stage your property if they believe it would benefit you.
Fittings and Fixtures
The ornamental lighting fixtures, blinds, and curtains will be appraised if they are included in the selling price. Your realtor will also note their condition when doing a market appraisal for your property.
Scope for Improvement
When appraising your property for appraisal, your estate agent will look at the scope for home improvements. They may even suggest some, given their expertise in knowing what buyers want in a property.
From simple paint jobs and replacing electric switches, to refurnishing a bathroom or kitchen, critical fixes can significantly help you get the price you want. At the same time, it is critical to do a cost analysis comparing the cost of the fix against the chances of a higher sale price.
Your estate agent will emphasise local amenities, street appeal, public transportation, shopping centres and school catchment regions. Nonetheless, if your property is away from these amenities, it does not mean it will be less attractive. Sometimes, local buyers prefer quieter streets and areas.
Limitations imposed by the local council, zoning, or planning will also be critical for potential buyers. If too many restrictions exist, it may limit options to develop or improve the property in the future, which will affect its potential worth.
The accessibility criteria includes parking and access to the front entrance and vehicle access. This is crucial if a young family or an older couple make up your primary customers. The easier it is to access, including access to utilities, the more desirable.
The real estate agents will examine your property throughout their evaluation to raise its worth. They may advise you on what the neighbourhood's purchasers want and what essential improvements will increase the value of your home. In this case, compare the expense to the selling price.
Prevailing Market Environment
Your realtor will consider the previous sales in your neighbourhood and the current market trends to provide an appraised value. They will also factor in the prevailing economic environment and interest rates.
At the same time, the market price may not be the only deciding factor. For example, a buyer may find your property meets all their requirements and decide to purchase it at your asking price.
How Long Does It Take For a Real Estate Agent to Provide a Property Appraisal Report?
Your sales representative will tour you around the home during an appraisal to evaluate the property's condition. They could offer you a rough price estimate at the time, but it's more likely that they will wait to express an opinion until they have investigated further. You'll get your property appraisal after this, which might take 24 to 48 hours.
Property Valuation Vs Appraisal
For starters, if you want to know the exact worth of your property, you’ll need to do a formal valuation. On the other hand, an appraisal is a rough estimate of your property’s worth.
The distinction does not end there. A property valuation differs from an appraisal in some other ways, as follows:
Property valuations are typically done by an independent licensed professional. A bank or financial institution hires a qualified valuer for a fee during the home loan approval. The amount ranges between $300-$600, though sometimes it's covered by the home loan lender).
On the other hand, property appraisals are usually done by a real estate agent and are free of charge.
Generally, a bank appraisal benefits mortgage lenders by enabling them to determine how much money they should loan you. It also helps them determine the resale value of your property if you default on your mortgage repayments.
Furthermore, buyers and sellers want an independent opinion before pre-purchase or pre-sale. Property valuations are thus ideal for those looking to take a new home loan, refinancing your current loan, or seeking equity loans and calculating your equity in the current home.
In addition, they also are helpful for capital gains tax calculations, building insurance, dispute resolution, and deceased estate settlements.
In contrast, potential sellers usually request property appraisals to know their home’s position in the property marketplace.
3. Method of Calculation
Valuers use direct comparison, summation or capitalisation methods to determine your property value. They will first inspect the property and research and analyse the local market. The findings will be incorporated into a detailed report outlining impacting the property's current market value.
In contrast, a property appraisal is based on recent sales data of comparable properties in the area and the home features.
4. Legal Standing
A property appraisal is only an estimate and a guide for pricing. Therefore, it does not have any legal standing. A property valuation, however, is a legally binding written report. Therefore, it can be used to obtain a definitive value of a property.
It should be noted that the appraised and formal property valuation may not always be reflected in the sale price.
How Much Does A Property Appraisal Cost?
The majority of estate agents provide free property appraisals. In addition, you may use online appraisal tools to acquire a free property value assessment. You could also research your neighbourhood's sales and market statistics to understand your home's current market worth.
How To Get A Property Appraisal?
Obtaining a property appraisal is a straightforward procedure. These steps will help you through the process so that you can be sure to get as accurate as possible appraisal:
Step 1: Book An Appraisal
In most cases, property appraisals are done free by realtors. Therefore, finding a local agent with good insights into the local area and recent sales is advisable.
It's important to note that real estate agents are specifically focused on details like property size, the number of bedrooms and bathrooms, the kitchen, and the general condition of the rooms and building structure. In short, don't stress about the household clutter!
Step 2: Home Visit
During the visit, your realtor will likely ask questions about the property, including any renovations. Always give honest answers, and mention if you have implemented any upgrades over the years.
You can enquire with your estate agent questions for references. Also, this would be a good time to quiz them about their local market knowledge, marketing initiatives, their commissions and other questions you may have.
Step 3: Property Appraisal figure and supporting documentation
Once their findings are ready, the estate agent will present you with a figure they think is accurate for your property. The report will usually include supporting documentation, for example, the local sales of comparable properties within the past three months and a brief note on market trends.
How Long Is A Property Appraisal Good For?
If you're looking to sell your home, you'll likely need to organise a property appraisal at least a month before listing.
If you are not currently planning on selling, getting your home appraised every year or two will help you stay updated on your home’s value. It will also assist you with your overall asset value, building insurance, and home loan equity.
Where Joust Can Help
A property appraisal gives you a clearer picture of your home's worth on the current market and the loan amount you may need.
At Joust, our Instant Match tool simplifies the process of finding a suitable home loan for you. With access to reputed Aussies lenders, we can help you get a home loan with rates and terms matching your unique circumstances. All you have to do is fill in a short online form and get matched.
The information in this article is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.