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Real estate appraisal, what is it?
A real estate appraisal is a process performed by a qualified professional to determine the fair and accurate value of real property at a specific time, this process involves a detailed evaluation of various factors that may influence the value of the property, such as its location, size, condition physical, specific characteristics, real estate market conditions and local regulations.
The real estate appraisal is important in various situations, such as the purchase or sale of a property, obtaining mortgage financing, estate planning, determining property taxes, among others, the results of the appraisal provide owners, buyers, lenders and other interested parties an objective estimate of the value of the property, helping them make informed decisions about real estate and financial transactions.
The professionals in charge of carrying out real estate appraisals are usually certified appraisers or real estate appraisers, who use specialized methods and techniques to arrive at an accurate valuation of the property in question.
What type of properties can be valued?
A wide variety of types of estate can be subject to valuation. Some of the most common include:
- Single-family homes: Individual houses or apartments intended for the residence of a single family.
- Multi-family homes: Apartment or condominium buildings that house multiple families in separate units.
- Shops and commercial premises: Properties used for commercial activities, such as retail stores, restaurants, offices, etc.
- Wastelands: Parcels of undeveloped land that may be intended for various uses, such as residential, commercial, or industrial development.
- Industrial properties: Facilities used for the manufacturing, storage, or distribution of goods, such as factories, warehouses, and distribution centers.
- Rural properties: Agricultural land, farms, ranches or other properties located in rural areas.
- Special properties: They include unique properties, such as hotels, hospitals, educational centers, sports facilities, leisure centers, among others.
These are just some examples of the types of real estate that can be valued, in general, any type of real estate that has an economic value can be subject to valuation, real estate valuation professionals use specific approaches and methods to determine the fair value of each type of property.
How is an apartment appraisal carried out?
The appraisal of an apartment or several apartments together as a housing unit follows a process similar to that of the appraisal of any other type of real estate property.
- Information gathering: The first step is to collect all the relevant information about the apartment, such as the address, size, number of rooms, state of repair, special features (such as views, additional services, etc.), and any other information you can affect its value.
- Physical inspection: An appraiser or expert appraiser real estate carries out a detailed physical inspection of the apartment, during this inspection, the general condition of the apartment, the quality of the construction, the distribution of space, the finishes, the lighting, the ventilation, among other aspects, are evaluated.
- Market analysis: The appraiser conducts an analysis of the local real estate market to determine how the apartment compares to similar properties that have recently sold in the same area, this includes considering factors such as price per square meter, location, features and market trends. .
- Application of valuation methods: The appraiser uses one or more valuation methods, such as the sales comparison method, the cost method, and the income method, to determine the value of the apartment, the most commonly used method for residential apartments is the sales comparison method. , which compares the apartment to similar properties that have recently sold in the same area.
- Preparation of the valuation report: Once the analysis is completed, the appraiser prepares a valuation report that includes a detailed description of the apartment, the data used in the analysis, the valuation methods applied, the conclusions, and the final value of the apartment.
Apartment Valuation Methods
| focus type | How does it apply? |
|---|---|
| market focus | This approach is based on the analysis of comparable properties in the same area, which allows the purchase-sale value of the property to be estimated. To complement this study, a physical inspection of the property is carried out in order to assess its state of conservation and determine its commercial value. |
| Specific cost approach | In this case, the value of the property is determined as if it were new, and then a depreciation is applied taking into account factors such as finishes, state of conservation, age, square meters, location, among other aspects. |
| Approach to appraisal of income | This approach involves calculating the rental value of the property, both monthly and annually, based on the rental market and the characteristics of the property. |
How much does an apartment appraisal cost?
| Type of property/square meters of construction and/or land | Appraisal Cost |
|---|---|
| Apartment up to 50 m2 | $3,600.00 |
| Apartment from 51 to 100 m2 | $3,800.00 |
| Apartment from 101 to 150 m2 | $4,000.00 |
| Apartment from 151 to 200 m2 | $4,300.00 |
THE VALUES IN THIS TABLE ARE AN EXAMPLE, THE COST OF THE APPRAISALS DEPENDS ON MORE SPECIFIC FACTORS OF EACH PROPERTY. THE REAL COST MAY VARY.
Factors that Affect the Value of an Apartment
The value of an apartment does not depend only on its size, but on a combination of factors that influence its valuation. Some of the most relevant include:
- Location
A desirable location, close to amenities such as public transportation, schools, hospitals, shopping and entertainment areas, significantly increases the value of an apartment. Proximity to popular or booming areas, such as financial districts or emerging neighborhoods, can also boost the price. - Size and distribution
The overall size of the apartment and the layout of its spaces (number of bedrooms, bathrooms, and common areas) are key factors in the valuation. An apartment with an efficient layout of spaces tends to have a higher value than one with poorly utilized spaces. - Physical condition and age
A well-maintained apartment with recent updates (such as kitchen and bathroom remodels) typically commands a higher value. Older apartments that require significant repairs, or that show signs of wear and tear, are often valued below their original price. - Additional services
Services such as gyms, swimming pools, event halls, 24 hour security, and well maintained common areas are elements that add value to the property. The presence of private garages, wineries, and elevators They can also make an apartment more attractive and valuable. - Real estate market conditions
The overall state of the market (boom or recession) influences property values. During periods of high demand, prices rise; in times of recession, values may fall. The supply and demand for similar properties in the same area also play an important role. - Legal aspects
Compliance with all local regulations, such as building permits and zoning, is crucial. An apartment with legal issues or incomplete documents (for example, without a legalized deed or building permits) will lose value on the market.
Advantages of an apartment appraisal
| Advantages of an Apartment Appraisal | Description |
|---|---|
| Accuracy in price | An appraisal provides an accurate and objective estimate of the apartment's value in the current market, which helps owners set a fair price when selling their property and buyers make informed investment decisions. |
| Facilitates transactions | Knowing the real value of the apartment makes buying and selling transactions more efficient and smooth. Both sellers and buyers can rely on the information provided by the appraisal to negotiate fairly and avoid conflicts. |
| Facilitates financing | Lenders often require an appraisal from the apartment as part of the mortgage financing application process. An accurate appraisal ensures that the lender is making a loan based on the property's true value, which reduces risk for both parties. |
| Financial planning | Homeowners can use the value determined in the appraisal to plan their personal finances and make strategic decisions, such as refinancing their mortgage, obtaining a home equity loan, or determining the value of their net worth. |
| Tax negotiation | An accurate appraisal can help homeowners negotiate the amount of property taxes with local taxing authorities. If the value determined in the appraisal is less than the value assessed by the taxing authorities, homeowners can request a reduction in their taxes. |
| Legal certainty | Having a professional appraisal performed by a certified appraiser provides legal security for both the owner and potential buyers. This helps prevent legal disputes related to the value of the property in the future. |
How Real Estate Market Conditions Affect
Real estate market conditions have a direct impact on property values, including apartments. Below are some of the factors that influence the market:
- Interest rates: When interest rates are low, mortgage loans become more affordable, which increases demand for properties and can push up prices. Conversely, when rates are high, demand is often reduced and prices may stabilize or fall.
- Demand and supply: In a market with high demand and low supply, prices tend to rise as there are more buyers competing for fewer properties. On the other hand, in a market saturated with properties, prices may fall due to increased competition between sellers.
- General economic factors: Economic growth, unemployment, purchasing power and other macroeconomic indicators affect individuals' purchasing power. During an economic downturn, property values may fall due to decreased demand and buyers' ability to finance housing.
- Changes in legislation and regulations: Changes in tax policies, property taxes, or zoning laws can impact prices. For example, if the government implements a policy that encourages housing construction or results in better infrastructure in an area, property values are likely to increase.
- Trends in demand: Changing consumer preferences, such as a preference for living in more central areas or near green spaces, also affect prices. The COVID-19 pandemic, for example, led to a surge in searches for properties with more space and outdoor areas.
The Role of Appraisal in Negotiation
An apartment appraisal plays a crucial role in the negotiation for both buyers and sellers. Below are some ways an appraisal affects negotiations:
- For buyers: An independent appraisal can help verify whether the sales price of a condo is fair and corresponds to the actual market value. If the appraised value is lower than the sales price, the buyer can use this information to negotiate a lower price.
- For SellersA seller can use the appraisal as a basis for setting an appropriate sales price, avoiding both overvaluation (which could scare away buyers) and undervaluation (which could cause the seller to lose money). The appraisal also provides the seller with objective proof of the property's value to justify the price to buyers.
- For lenders: Lenders use the appraisal to determine how much they are willing to finance. If the appraisal is lower than the sales price, the lender may be less willing to provide a loan for the full amount of the sales price.
Differences in Appraisal for New Properties vs. Used Properties
The appraisal process can vary depending on whether the property is new or used, and these differences affect both the appraisal method and the factors to be considered.
- New Properties:
The appraisal of a new apartment usually focuses on the cost of construction and the value of the land. Depreciation is not a major factor because the property is in its best condition. In addition, modern improvements such as construction technologies, energy efficiency and high-end finishes are evaluated. - Used Properties:
In the case of a used apartment, depreciation is a key factor to consider. The appraiser must consider the age of the property, the wear and tear of materials, the need for repairs and any renovations that have been carried out. The state of maintenance and renovations also significantly impact the value.
