How Appraisal Reports Are Used In Determining Real Estate Values

Appraisal reports are prepared by residential and commercial real estate appraisers for potential lenders looking at properties on which they are being asked to lend money. These reports are an essential part of the appraisal process which helps lenders decide on the maximum amount they are prepared to lend.

These appraisal reports are compiled be professional appraisers who are licensed with the state in which they operate, and are able to use the letters CREA after their name. These letters stand for Certified Real Estate Appraiser. It is to everyone's benefit if the appraiser has some local knowledge, although statistics will give a good estimate as to potential value if the neighborhood has a high enough volume of sales.

The appraisal report will start with a detailed analysis of the neighborhood. This is one of the most critical factors in determining a property's value, no matter how desirable it may otherwise be. No-one is going to want to buy a house in a run down, dangerous neighborhood if they can buy an equivalent property in a far better one. Nothing kills house sales more quickly than a bad neighborhood.

Once the neighborhood has been analyzed, the report then needs to contain a detailed analysis of the structure of a property, as this is what will influence its value to the greatest degree. Cosmetic and decorative considerations come a distant second to the need to have a sound structure. Cosmetic appearances can always be changed, but repair to the structure of a property can be hugely expensive and take a lot of time.

The description of the site is fundamental to assessing the value of the property with any accuracy. Even if a property is in a run down condition and in need of extensive repair, the site itself may have the potential to be used for a different type of property. This is dependent, of course, upon zoning regulations. These will be considered by the appraiser in situations where a change of use for the site could lead to a dramatic change in its value.

Appraisal reports need to consider the sales which have taken place recently within a specified area. This is never an easy consideration, as properties can vary so much even within an area. A rough neighborhood can be very close indeed to a far more upmarket one. The greater the volume of statistics available, the more likely it is that data deduced from them will be accurate to a reasonable tolerance.

Areas vary so much in terms of volume sales as well. You can walk around some neighborhoods and hardly ever see a for sale sign, whereas others will have them displayed regularly. Modern society is far more mobile than it once was, but there are still areas where stability is far more common. It is these areas which present the greatest problem for the appraiser, as there will be fewer sales to reference within any given time scale, and therefore less data from which to draw an accurate conclusion. This is why even highly trained and experienced appraisers can often produce quite different appraisal reports.

Appraisers, Real Estate

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