A Charlottesville Virginia home or property can be valued in different ways for different purposes. As a buyer, folks often want the value to be high but they also want their asking price to be relatively low. As a seller, people may want the value to be high but the tax assessment to be lower. Regardless of which perspective, the take away is that there are many opinions of property value in Central VA and all of those opinions can be based on real information.
As Charlottesville realtors, we use a Comparative Market Analysis (CMA) to estimate a property’s worth. This is achieved by
compiling recent data of properties actively on the market as well as data regarding the terms of recently sold properties. It becomes a bit subjective because the realtor must know a lot about neighborhood values, recent sales trends, and other facts that will be used in the comparison. We’ll have more about CMA’s in another post.
An appraiser is a person who is licensed to provide estimates of a property’s value as well. But Charlottesville appraisers are generally hired by a third party to conduct the appraisal. They might be appraising the property to validate the issuance of a home mortgage because a lender will want to verify that not only is the borrower able to afford the loan… but also the home is worth the money that the borrower wants. Often a seller in our Central VA area will hire an appraiser prior to selecting the final asking price when the home is put on the market. That appraisal is a good guideline and another tool for proper pricing, but also that appraisal will likely not be considered by any eventual lender or by the buyer.
Appraisers provide the independent evaluation that assures buyers, sellers, and lenders that the property value supports the sales contract. All government loans … USDA, VA and FHA … require that the property appraise for the sale price. As realtors, if we are working with a property that will have a conventional loan, we often stipulate into a contract that the property must appraise for sale price.
So, you already know that your realtor will provide you with a Comparative Market Analysis that will include both For Sale properties similar to your own, as well as recently Sold properties that might compare to yours. But how does an appraiser go about providing an assessment of value if they don’t use real estate statistics?
Appraisers use 3 methods to determine a home’s value:the market data, the replacement cost and the income approach. Depending on the property, an appraiser can put more weight on one approach than another based on his/her determination of what would be appropriate.
(1) The Replacement Cost approach looks at what it would cost to rebuild the property today less the depreciation it has experienced by age and wear and tear plus the value of the lot. (2) The Income Approach is used primarily for commercial properties (or rental investment properties). It uses a capitalization rate based on the net operating income of a property to determine value. And (3) The Market Data approach is similar to the way a realtor develops a CMA, looking at recent sales of similar properties near the subject. The appraiser will make monetary adjustments for differences in the comparables that are used to create a more accurate comparison.
And it’s important to remember that no matter what a sales appraisal states as the price… no matter what the seller decides as his asking price for the property …. the actual market value of the property is the final settlement price when it is sold to a buyer. Buyer=Market.