Use of Appraisal

Definition: Use of Appraisal

An appraisal in real estate is a professional assessment of a property’s market value. The use of appraisal refers specifically to the purpose or intent for which the valuation is conducted. Appraisals can be commissioned for multiple reasons, such as securing a mortgage, resolving disputes, facilitating sales, or determining taxation amounts.

Examples

1. Mortgage Collateral:

   • Description: Lenders often require an appraisal to determine the market value of a property being used to secure a loan.
   • Example: A buyer is seeking a mortgage to purchase a house. The lender commissions an appraisal to ensure that the property is worth the loan amount.

2. Condemnation:

   • Description: Appraisals are used in the process of exercising eminent domain to determine fair compensation for the property owner.
   • Example: A municipal government needs to acquire private land to build a public roadway. An appraisal is conducted to assess the market value of the property to compensate the owner fairly.

3. Liquidation:

   • Description: In the event of financial distress, appraisals help determine the value of assets that may be sold off to pay creditors.
   • Example: A business in bankruptcy may have its assets, including real estate, appraised to facilitate liquidation and pay off outstanding debts.

Frequently Asked Questions (FAQs)

What are the common uses of real estate appraisals?

• Mortgage lending
• Property tax appeals
• Litigation purposes
• Estate planning and probate
• Insurance purposes
• Determining listing price for sales

Who typically conducts property appraisals?

• Licensed appraisers who meet state-specific qualifications and are often accredited by professional organizations such as the Appraisal Institute.

How often should a property be appraised?

• The frequency varies based on the intended use, but typically properties are appraised at the time of transaction or significant financial events (e.g., refinancing a mortgage).

What factors affect a property’s appraisal value?

• Location, size, condition, market conditions, comparable sales, and improvements made to the property.

Can you dispute an appraisal?

• Yes, if you believe there are errors or missed information, you can request a review or second appraisal with documented evidence.

Related Terms

Market Value

• Definition: The estimated amount for which a property should exchange on the date of appraisal between a willing buyer and seller in an arm’s length transaction.

Comparative Market Analysis (CMA)

• Definition: An evaluation provided by real estate agents comparing similar, recently sold properties to determine fair market value.

Assessed Value

• Definition: The value of a property as determined by the local taxing authority for the purpose of calculating property taxes.

Fair Market Value (FMV)

• Definition: The price that property would sell for on the open market between willing buyer and seller without any undue pressure to act.

Depreciation

• Definition: The gradual decrease in the economic value of a property over time due to wear and tear and obsolescence.

Online Resources

1. Appraisal Institute:

   • www.appraisalinstitute.org
   • Offers resources on appraisal standards, education, and certification.

2. The Appraisal Foundation:

   • www.appraisalfoundation.org
   • Provides regulations and qualifications for appraisers.

3. Federal Housing Finance Agency State HPI:

   • www.fhfa.gov
   • Information on housing price indexes and appraisal standards.

References

1. “Uniform Standards of Professional Appraisal Practice (USPAP)” by The Appraisal Foundation.
2. “Real Estate Appraisal: From Value to Worth” by Nigel Enever and Richard Heywood.

Suggested Books for Further Studies

1. “The Appraisal of Real Estate” by the Appraisal Institute:

   • This comprehensive resource covers all aspects of real estate appraisal theory and practice.

2. “Real Estate Valuation Theory” by Ko Wang and Marvin L. Wolverton:

   • Focuses on contemporary theories and practices in real estate valuation.

3. “Investing in REITs: Real Estate Investment Trusts” by Ralph L. Block:

   • Though not exclusively on appraisals, this book provides valuable insights into real estate investments and valuation.

Real Estate Basics: Use of Appraisal Fundamentals Quiz