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Understanding Home Appraisals

By Derren Peters

Appraisals are vital in the Texas real estate market, relevant to buyers, sellers, and lenders. Each report is the result of a licensed, independent professional conducting a survey of the subject home to determine the value of the property. The appraisal value given in the report stands as the definitive word on the value of that property, setting the guideline for what the bank is willing to lend to the homebuyer.

The appraiser documents the property's interior and exterior condition, from the layout, amenities and features, modernization updates, and the overall construction quality. The appraiser estimates the GLA (gross living area) in square footage by measuring the exterior of the home. Finished basements and non-living areas such as garages aren't included in the GLA estimate, but are documented and considered in value separately. This information will guide the appraiser throughout the comparison and valuation process. In most cases, the appraiser only considers permanent structures and real property. As most small sheds and above-ground swimming pools are not permanent fixtures, they are usually excluded in the valuation.

There are two appraisal methods used for residential properties, the cost approach and sales comparison. The former is applied to newly built properties, where the costs to build are known. The figure given is an estimate of how much it would cost to replace the structure if it were destroyed. A sales comparison determines the home's market value by comparing it to similar properties recently sold in the area. As no two properties are ever alike, the appraiser must make paperwork adjustments to the comps to make their features more in sync with the subject property. The resulting figures show what each comp would have sold for if it had the same specs as the subject.

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