A closing cost is a payment required to finalize a home loan and is separate from a down-payment. Read about closing cost, their purpose, how you can pay them and more by clicking learn more below.
APPRAISAL
MORTGAGE BASICS
WHAT IS APPRAISAL?
An Appraisal is an estimate of a property's fair market value. It's a document generally required (depending on the loan program) by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property. The Appraisal is performed by an "Appraiser" typically a state-licensed professional who is trained to render expert opinions concerning property values, its location, amenities, and physical conditions.
WHY GET APPRAISAL?
Obtaining a loan is the most common reason for ordering an Appraisal, however there are other reasons to get one:
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Contesting high property taxes
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Establishing the replacement cost for insurance purposes
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Divorce settlement
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Estate settlement
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Negotiating tool in real estate transactions
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Determining a reasonable price when selling real estate
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Protecting your rights in an eminent domain case
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A government agency requirement
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A lawsuit
WHAT ARE APPRAISAL METHOD?
There are 3 common approaches, or Appraisal Methods, used by Appraisers to establish property value. After a thorough exercise of all 3, a final value estimate is correlated. When evaluating single-family, owner-occupied properties, the Sales Comparison Approach is heavily weighted by an Appraiser.
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Cost Approach – A formula is used to obtain the property value: Land value (vacant) added to the cost to reconstruct the appraised building as new on the date of value, less accrued depreciation the building suffers in comparison with a new building.
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Sales Comparison Approach – The Appraiser identifies 3 to 4 comparable comps, recently sold properties in the neighborhood, ideally, sold in the previous 6 months and within ½ mile of the subject property. A comparison is done between the recently sold properties and the subject property including square footage, number of bedrooms and bathrooms, property age, lot size, view, and property condition.
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Income Approach – The potential net income of the property is capitalized to arrive at a property value. Capitalization is the process of converting a future income stream into a present value. This approach is suited to income-providing properties and is used in conjunction with other valuation methods.
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