Appraisal and Valuation
If you have a desire to sell something, whether it be a collectors edition baseball card or an entire business, you probably want to sell it for the highest price possible. To set a fair but profitable asking price, you will likely need to get an appraisal on the item you wish to sell.
An appraiser is a professional who can help determine the value of an item. A good appraiser has knowledge of the market and other applicable price factors that pertain to your particular item and affect its estimated value.
Many different items can be appraised, and each has different factors that affect the price, as well as unique processes for determining the value.
Home Appraisal
A real estate appraisal, also known as property valuation, determines the value of the house and the land surrounding it. Some of the factors that can affect the value of a home include:
The Role of Market Value in Home Appraisals
As the economy fluctuates, so does the housing market. This means that the value of your home is based on the date you plan on selling your house in relation to the real estate market. For example, if all the town houses in your cul-de-sac are selling for a certain price this month, odds are good your current market value will be close, if not identical, to those other homes.
Valuation
As defined by the Uniform Standards of Professional Appraisal Practices (USPAP), appraisers can quantify a property's value through one (or a combination of) three general methods:
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Cost Approach: According to this method, appraisers set a home's value based on the amount of money it would cost to replace the property if it were built in the exact same manner.
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Income Approach: While this approach is usually reserved for investment or commercial properties, it evaluates the price of property based on how much income (in rent, etc.) that the property can draw in a year's time.
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Sales Comparison Approach: This valuation technique bases property value on comparable properties that have sold recently.
Why You Need an Appraisal
Accurate appraisals are crucial to determining proper mortgage lending, taxation and investment. Without careful regulation, appraisals could negatively impact the consumer, as unfair assessments may overprice the home or product being sold. Appraisals are necessary for:
- commercial investment: Investors looking to flip a property or to buy into a money-making property must know the value of the property. Without an appraisal of the actual real estate (as well as the business value for those purchasing property and the businesses on them), investors would have no concept of the returns they could expect from their investment.
- insurance: Once you finally buy the house of your dreams, it is important to make sure you protect yourself from any uncontrollable events, such as fires or natural disasters. Before insurance companies will agree to cover your house, you must first get an insurance appraisal or insurance valuation to confirm the value of the home.
- mortgage loans: As very few of us can afford buying homes outright, we apply for mortgage loans. Lenders require an unbiased valuation of the property before they will release the loan. This appraisal must be exact, as the house serves as a guarantee for the loan amount, should the borrower ever default on payment.
- property tax: An appraiser determines the value of your home every few years to ensure proper taxation. This is where an inflated valuation of properties can create higher taxes for homeowners.
Since appraisals can determine anything from profit to having a roof over your head, be sure to thoroughly research any appraiser you are thinking of using. Screen candidates to make sure they have the necessary credentials and have a good record with lenders.
Other Items You May Need Appraised
While real estate is normally associated with appraisal and valuation, you may also be familiar with other types of valuation. Anything brought to a pawnshop, for example, must first be evaluated before you can put a price on it. Other common types of appraisal are:
- art appraisals
- car appraisals
- jewelry valuation
- personal appraisals.
Personal Appraisal
Personal items brought to a consignment or pawnshop will be appraised so that merchants can set fair asking prices for them. Values are generally determined by the market value of similar objects. To find an accurate price, these types of appraisals generally consider:
- age
- wear
- unique additions.
When assessing collectibles, age can increase the value, as fewer and fewer of these objects are available in good condition as the years go by. Electronics and technologies, on the other hand, face devaluation with the years, as more advances are made in the field. To accurately and fairly appraise items, appraisers should adhere to guidelines accepted by the Uniform Standards of Professional Appraisal Practice (USPAP).
Precious Stone Valuation
The value of a stone is also dependant on guidelines well illustrated by the USPAP. If you are employing an appraiser for the purchase of a diamond or another precious stone, be sure to check out his or her credentials. As there is no law regarding appraiser’s credentials, consumers must do their research. The ideal candidate should have a degree in gemology or be a member of an accredited organization. It is also important to make sure that your chosen appraiser has no monetary interest in the item being appraised, as this can bias his or her valuation.
Art Appraisal
One of the main reasons you should get your art appraised is to make sure you have the correct amount of insurance coverage. Art is a good example of an item that can gain value over the years, depending on the artist’s popularity.
While art is irreplaceable, it is comforting to know that having adequate insurance coverage (which is determined by the art appraisal) will help you re-coop some of your losses should your artwork be stolen or destroyed. Several associations deal with art appraisals, including the American Society of Appraisers and Art Dealers of America Art Appraisals.
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