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Real Estate appraisals are an important part of home purchases and sales. They are the deciding factor for buyers, in many cases, in whether to buy a home and for how much. But it seems almost every year a new real estate appraisal law is implemented. And new real estate appraisal laws vary by state, so make sure you're informed on the laws in your state to ensure a successful sale at an optimal price.
Not everyone can do an appraisal, however. Appraisers have to maintain an up-to-date license. The appraisal license must not only be current for the particular state where the appraiser resides, but also for where s/he does business if it is in a neighboring state. Failure to keep the license current will result in fines and perhaps revocation of the license.
Almost any new real estate appraisal law benefits the prospective buyer. When a buyer seeks financing, a real estate appraisal will be the first thing the financial institution requests. The amount the bank is willing to lend is contingent on the real estate appraisal. Often homeowners feel their property is worth more than it actually is so real estate appraisals give the buyer and the bank an idea of its actual value.
Although there may be a new real estate appraisal law for a specific state, as they vary from state to state, the method of determining the value of a home does not vary too much. There is usually a combination of three methods used by appraisers to determine value: the "cost approach," the "comparison approach" and the "income approach."
The "cost approach" involves determining what it would cost to replace the home, based on its size, minus any depreciation or deterioration, and functional and economic obsolescence. After the balance is determined, it is added to the value of the land where the home is situated. The "comparison approach" involves looking at other homes of the same quality, size, and location that have recently been sold. A small farmhouse of 1,000 square feet located in Wisconsin is not going to sell for the same price as a 1,000 square-foot home in a wealthy Chicago suburb, so this is taken into consideration when making the comparison. The "income approach" is used in commercial properties and plays little part in determining the value of residential properties. This approach determines the value based on how much income the property brings in. Once one of these methods is put into play, the appraiser will come to a final determination of the value of the property.
Although the basis of real estate appraisals is similar in most states, new real estate appraisal laws may change from year to year so it's important to stay informed about any changes, whether you're an appraiser, homeowner, or financial institution.
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