Why do I need an appraisal?

Why Do I Need an Appraisal?

An appraisal provides an opinion of market value for real estate – whether that property is a house, a small acreage property, an empty lot in the middle of town, commercial real estate, or a farm or ranch out in the country. Depending on the type of property you have – or want to have – will determine why you may need an appraiser to estimate the market value of real estate.  

To estimate the market value of the property, an appraiser will: tour the property and assess the characteristics, condition and quality, search for comparable sales, rents or cost data of similar properties in that particular area, analyze the gathered information, and estimate the market value of the property by the appropriate approach to value (Cost Approach, Sales Comparison Approach, Income Capitalization Approach).  

Depending on the type of property you have – or want to have – will determine why you may need an appraiser to estimate the market value of real estate.  

Why do I need an appraisal?

Appraisals are needed or required for a number of reasons, including:

  • Financing: whether you are purchasing a new property, re-financing a piece of property you already own, or utilizing real estate as collateral for a line of credit, a financial institution will often require an appraisal
  • Estate Planning & Settlement: real estate is often one of the largest assets in an estate. Appraisals are integral to planning when passing along property to future generations or for settlement in the event an estate is taxable. Appraisals are often utilized to determine if an estate has reached a taxable threshold.
  • Litigation Support: unfortunately, there are times when owners of real estate do not agree. Having an unbiased third party offer an opinion of value is needed at times to settle disputes, division of assets, etc.
  • Partitions: division of properties amongst siblings, other family members, non-related parties, etc. is common. While a house or specified lot can’t necessarily be divided, most acreage can. An appraiser is often hired to help equitably divide real estate amongst owners most often based on equal value and not equal acreage.
  • Trusts & Asset Management: real estate is often held in trust and managed by a fiduciary. It is common for asset managers or trust officers to have real estate appraised to determine their fee structure for management of the asset, estimate the market value to set a minimum in asset disposition (a potential sale), etc. Appraisers can also estimate an appropriate lease rate or market rent for a specified property for the asset manager or trust officer.

Relationships are important among real estate professionals. It is common for an appraisal request to be made by someone other than the property owner. Instead, a representative from a financial institution, an attorney, an accountant, or someone serving in a fiduciary capacity on behalf of their client will contact the appraiser. While this is common practice, it is just as common to be contacted directly by a property owner.

The value of real estate can change quickly depending on current economic conditions. It is important to have a current appraisal before making decisions. Value is the cornerstone of real estate, and a good appraiser will have an intimate knowledge of the markets they serve.