Appraisal 101
by Mark Fisher, Appraisal Technician
June 2020
If you are looking to buy or sell any real property, you have likely heard the term "appraisal" discussed. In short, a property appraisal is an objective valuation in which the appraiser will estimate the value of the home, commercial building, or farmland being appraised. There is a standard process by which this happens. The appraiser will come to the property, roughly inspect it, and compare it against known sales. Of course, your land and building will not be identical to any other property, so an appraiser takes this into account by adding or subtracting value when necessary. The result is an objective evaluation of how much your property is worth.
While the theory behind an appraisal is relatively straightforward, the reality is more nuanced. Specifically, people sometimes have questions about when and why an appraisal is needed and also what impact it will have.
When and Why Would I Need an Appraisal?
You need an appraisal whenever you need to know the value of the real property. A typical scenario in which you need this information is during the purchase of a home. As a condition of giving you a mortgage, banks almost always want to know the worth of the underlying security backing the loan. To determine this, they contract with an objective third-party (the appraiser) to give them an estimate of value. A home appraiser near you will be sent out to provide this estimate. As part of the home-buying process, you will usually have an appraisal contingency that will let you back out of the deal if the property is not worth at least as much as your offer. If you have ever purchased a home or are buying one now, you've probably run into this appraisal type before.
Purchasing a home is not the only time you need an appraisal.
Another typical reason to obtain an appraisal is for an application to refinance a mortgage or for a HELOC. Much like the first deed mortgage, the bank needs to know that the underlying asset will cover the loan in the case of default. As such, they order an appraisal to make sure that your home is, indeed, worth enough.
Typically, in all the above cases, the bank is the one that orders the appraisal. You will see a copy of the report, but the appraiser will be working for the bank, not you (even if you pay for the appraisal). If you want, you can always get a second, utterly unbiased opinion by ordering an appraisal yourself. A home, commercial property, or farm is a substantial investment, and having two independent verifications of its value does not hurt.
Not only do you need appraisals for lending, but also for legal procedures.
However, these are not the only times an appraisal is required. Other legal processes, such as divorce and dissolution of a business, require an appraisal. For example, in the case of divorce, a court might need to know the value of the couple's former home to divide that asset fairly. In this case, the court would order an appraisal to get a good idea of how much the home would likely fetch on the open market.
You may also need to order an appraisal for less common circumstances. If you are gifting real property, for example, you might need to know what the value of that gift is for tax purposes. A home appraiser can answer that question for you. If you want an accurate property value for the balance sheet of your corporation or farm, your appraiser can once again assist with that. Finally, if you believe your county has valued your property too high and that you are paying too much in property tax, an appraisal is useful evidence that their valuation is wrong. Of course, each county and state have different rules regarding this, so you would need to check the regulations for your particular jurisdiction.
Appraisals are needed for tax-related issues and many other reasons.
In short, you need to have an appraisal done whenever you need to know the actual value of your real property. Sometimes the law or the bank will require one, but other times it is merely for peace of mind. Still other times, it is for determining a sale price. Property is likely the most expensive thing you will buy or sell. Having a comprehensive, unbiased opinion on its real value is typically a great idea!
How Will An Appraisal Impact Me?
Knowing the value of your property can have some significant implications, positive or negative, depending on your particular circumstance.
If you are trying to buy a home, and the appraisal meets or exceeds the offer price, you are good to go. If it does not, you will need to make up the difference by putting more money down, or you will need to walk away from the transaction. For that reason, having an accurate assessment of the home's value done by a talented home appraiser is incredibly critical.
For other situations, like divorce or dissolution of a business, having the right valuation has a significant impact as well. It can determine how much you need to give your ex-spouse or how much a court will award you for your share of the business.
Spurgeon Appraisals Gives You All The Information You Need
Knowing the real value of your property is incredibly useful. At Spurgeon Appraisals, we pride ourselves on accurate results and impeccable customer service. Financial institutions trust us, and we have received compliments for our Farmer Mac experience. We provide thorough, detailed reports to ensure all our clients have a comprehensive and clear understanding of why their property valuation is what it is.
We cover Missouri, Illinois, and Iowa.
We service multiple counties within the Missouri and Illinois for home appraisals. Farm appraisals have a similar coverage area, but we service more counties, such as Saline county, and we even go to southeastern Iowa. We can do commercial appraisals anywhere within these three states.
No matter what you want an appraisal for, consider letting Spurgeon Appraisals give you an honest estimate of what your property is worth. With friendly customer service and a wealth of knowledge, we will make sure the process is as quick and easy as possible. If you live in Missouri, Illinois, or Iowa, we likely have the best appraiser near you.
Feel free to email us at frontdesk@spurgeonappraisals.com or call us at 573-769-7779. We will be happy to discuss your particular project with you and ensure you have your appraisal done promptly and professionally!
