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Since real estate characteristics and properties vary in size, number of bedrooms and bathrooms, location, lot size and amenities, real estate values can vary considerably and depend on many of the above physical factors.
Property values go up and down all the time depending on market conditions. Over the long-term though, real estate property values generally appreciate.
Supply and demand determines market conditions. When there is a lot of demand and little supply the market is considered a “seller’s market.” When there is a lot of inventory on the market, it’s a “buyer’s market.” Real estate cycles change constantly. There have been real estate booms and busts throughout history. Right now, market conditions for most of the country represent a “buyer’s market.” There is a lot of inventory available in many parts of the country as a result of the recent sub-prime mortgage crisis.
One of the best ways to ascertain the value of a property is to enlist the help of an appraiser. Real Estate Appraisers must be licensed and meet certain educational requirements. The licensing rules and education requirements vary from state to state. However, the guidelines that all appraisers follow are pursuant to The Uniform Standards of Professional Appraisal Practice (USPAP). Fees vary so check around before hiring an appraiser, and by obtaining referrals from your mortgage broker, Realtor®, family, friends and other investors.
If you are getting financing, all lenders require that a real estate appraisal be done. It is the job of the real estate appraiser to determine the value of real property (land, houses, buildings, etc.). When you buy real estate, generally you will hire a real estate appraise to determine the property value. Appraisals also provide investors with an important negotiating tool when negotiating with sellers.
Keep in mind that all appraisal reports should contain a statement about the “highest and best use” of the property. All properties viewed as comparable should have the same “highest and best use,” and property should be priced based on its “highest and best use.”
Appraisers use three approaches in determining value. The “comparable sales approach,” the “cost approach” and the “income capitalization approach.” Different approaches are used for different types of property. When appraising single-family homes, appraisers generally use the “comparable sales approach.” “Cost approaches” are used for new buildings. The “income capitalization approach” is used for investment properties such as apartment buildings.
A property appraisal is extremely important in the decision making process about whether to purchase a property and at what price. Remember, just because you are purchasing a property at 10 percent or 20 percent below the asking price, it does not mean that the property is a great investment. Only after you review the appraisal and the appraiser’s conclusions, can you really determine if the property is a good investment.
A CMA is a “comparative market analysis” of similar properties that are currently listed, under contract, and which have sold in the area. Realtors® prepare CMAs for buyers and sellers as part of their services. There are no fees involved in obtaining a CMA. CMAs are also helpful because it gives an idea of what the homes in the area are going for and what to offer the seller for his or her property.
Source: http://www.answers.com/topic/self-contained-appraisal-report
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