3 Most frequently asked questions about real estate appraisals

1. What is a real estate appraisal?

Wikipedia defines Real estate appraisal as "the practice of developing an opinion of the value of real property, usually its Market Value. 

You will mostly hear this term being used in America, as many other countries use the terms property valuation or land valuation.

 The need for appraisals arises from the heterogeneous nature of property as an investment class:

• no two properties are identical
• all properties differ within their location (which greatly determines the value)

Because of these two factors, there can’t be a centralized Walrasian auction setting for the trading of property assets, as there exists for trade in corporate stock.  The absence of a market-based pricing mechanism determines the need for expert appraisal, valuation of real estate and property.

Who does a real estate appraisal?

Real estate appraisals are performed by a licensed or certified appraiser (in many countries known as a property valuer or land valuer).  If the appraiser's opinion is based on market value, then it must also be based on the Highest and Best Use of the real property.  For mortgage valuations of improved residential property in the US, the appraisal is most often reported on a standardized form, such as the Uniform Residential Appraisal Report.  Appraisals of more complex property (e.g. -- income producing, raw land) are usually reported in a narrative appraisal report."

2. Why not use a free appraisal service?

Free appraisal systems look at a neighbourhood and look at prices of homes in that area.  It averages home values and comes up with an average assessment of value.  If 2 houses are valued at $200,000 and $1,000,000, then the average value for either one is $600,000. 

The reason why this isn’t an adequate solution for you is because in the Chicago Real Estate market, properties have many unique characteristics that help define value, an averaging method would not take into consideration the true value of these characteristics

3. When do you need a professional independent appraisal?

Appraisals are used in most, if not all, transactions for buying, selling, or refinancing a home.  You would need a real estate appraisal in the following cases:  

1.  Selling a home - Whether or not you use a Realtor or sell on your own, a professional appraisal can help determine your selling price without guesswork.  To unlock your home's value, start with an independent real estate appraisal to determine the true value of your property.  

2.  Buying a home - Value of homes continue to rise but as a buyer, you need a professional who knows the neighborhood in order to have "peace of mind" regarding what you should offer for the home.  Without an independent real estate appraisal, you are reliant upon the seller to define the property's value.

3.  Refinancing - Because you need a new loan, most lenders will require a professional appraisal in order to keep valuation current.

4.  Divorce settlements - In the event of a divorce, the valuation of assets is required so that equitable distribution can be made.  One of the most valuable assets most people own is their home, therefore setting a value is the first step toward working through the settlement.

5.  Estate Liquidation - When settling an estate, often the estate or probate will require a professional appraisal, ensuring that beneficiaries have an accurate, fair, and true valuation of a home. 

6.  PMI Removal - Many lenders require supplemental insurance when the amount loaned is 80% or higher of the value of the home.  When property values increase and or payments have made the amount of the loan less than 80%, an assessment is used to challenge the mortgage holder in order to remove this additional insurance burden.

If you’re looking for certified real estate valuation experts that go the extra mile to inspect your property in Chicago, contact us now!