When it comes to home appraisals, they are broken down into two most commonly used methods. While both are different, they also serve an important purpose. Obviously, the appraisal is used to protect the buyer, making sure they are getting what they think they are getting and for a fair price. However, if you want to sell your home and prefer to get ahead of the game, you too can hire an appraiser to identify potential problems.
With that, you would have the opportunity to fix serious problems prior to putting the house on the market. In many cases, if you sell quickly, the buyer can use the existing appraisal statement or just have a refresher appraisal performed, which is not as expensive. Therefore, whether you are a buyer or seller, the appraisal is an invaluable tool in the real estate world.
The first type of method used is called the Sales Comparison Approach in which the appraiser would take the home you want to buy or sell, and then compare it to similar homes sold in the same vicinity. Remember, even while homes may be built by the same builder or carry the same size and design, they are all very different. Therefore, it is imperative that the appraiser make careful comparisons in fairness.
The second method is known as the Cost Approach. For this option, you would typically see appraisers using it for new properties, a situation in which costs for building the home are a known entity. For this, the appraiser would be able to make an estimate on costs for replacing the home if for any reason it were to be damaged or destroyed.
With the appraisal process completed early in the buying process, typically when you submit a loan application, the lender’s approval of that application for that house will depend largely on what the appraiser has to say. Remember, the goal for the lender is to protect the money they are lending. Therefore, the lender will look at the appraiser’s report carefully to determine if the home or property is worth the money, thus you being approved or not for the loan.