What are appraisals and why is it important. If you have not purchased a home yet, you probably do not understand the need for appraisers and appraisals. They are essential to identify the possible value of a certain property. However, it is not the same with the comparative sales. Lenders use this to be certain that the property you are using as collateral has at least similar value with the amount you are borrowing.

A person called the appraiser does this. He is trained for the job and has done internship to ensure that he knows what he is doing. He knows what to check and what to evaluate in order to come up with the information that is useful for all parties involved. To ensure fairness, the appraiser has to be someone who does not have any kind of interest on the property being appraised.

Most lenders and banks have their own appraiser. However, in most cases, they hire someone who is not among their staff. If you are a borrower and you choose an appraiser that is not approved by the lender, expect his reports to be reviewed first before your loan can be approved.

The appraisal is essential because it provides very helpful information. If you are purchasing the property, this gives you the opportunity to know the current state of the property. However, do not mistake this for a home inspection. The appraiser will give you details about the condition of the real estate market in that community and how the property is, compared to other similar properties.

Lenders also use this especially if you are going to use your property as collateral. Since you will need to have your property appraised, you have to make necessary preparations. Among the preparations you need to make is get to know the appraiser before you let him inside your property. This will make you feel more secured about the process.

You have to prepare your property as well. Present it as if you are selling the property. Remember, impressions count. If you want the property to have good evaluation, you have to clean it. If there are boxes because you are preparing to move, it is all right as long as you arrange them properly. Always remember that the information that the appraiser will write in his report is about what he sees in your property.

The property should be ready for the evaluator as well. He will enter each room and measure the walls and certain areas of the property. Make it easy for him to access by removing objects that will make it challenging for him. You should also warn him about certain threats like holes and the like. If you have a dog, do not let it near the appraiser even if he is friendly. This is to make sure that it does not attack him.

Several parties can benefit from the appraisal. The seller could use it to determine the value of the property. The lender can refer to it in approving a loan application. And the buyer will have an idea about the actual value of the property.

As an Certified Appraiser I can tell you that the most common mistake that many beginning real estate investors make is that they pay too much for property. Fact is overpaying for property is often cited as the number one reason why so many newcomers fail to make it as profitable real estate investors. That’s because most beginning real estate investors are woefully under capitalized, and they don’t have the deep pockets that are needed to subsidize their overpriced real estate investments.

For many neophyte investors, paying too much for their first investment property usually proves to be a very costly and fatal mistake, and marks the beginning of the end of their foray into real estate. That’s why it’s imperative that you learn how to accurately estimate the current market value of potential investment properties! As far as I’m concerned, it’s the single most important aspect of the entire real estate investment business!

A Fast $50,000 Profit for Knowing the Value of a Condemned House

I once bought a real estate option on a filthy, neglected, run-down, but structurally sound house in a neighborhood-in-transition within Los Angeles, California, that had been condemned for building, safety, health and fire code violations. This place looked like something right out of downtown Baghdad, Iraq! It had what code enforcement inspectors commonly refer to as accumulations of every type of debris, garbage and junk known to mankind! The property’s owner lived in Westerville, Ohio, and wanted the steady stream of threatening letters from the Winter Park Code Enforcement Board to stop.

I had done my homework, and knew the property was worth at least $450,000 after it was cleaned up. I ended up paying $2500 for a six month option to purchase the house for $365,000. It cost me $10,000 to have all of the accumulations removed from the property, and the house, driveway and walkways pressure washed. Three weeks later, I sold my real estate option agreement for a $65,000 profit! This never would have happened if I had been clueless about how to estimate property values. Since I had an accurate estimate as to how much the property was worth in its current condition, I was able to negotiate a below market purchase price that was based on the property’s filthy, neglected, run-down non-marketable condition, and not on how much it might have been worth after it had been cleaned up.

No Kelly Blue Book for Real Estate Investors to Look Up Property Values

Sadly, there’s no Kelly Blue Book equivalent for real estate investors to lookup used property prices in, so you’re going to have to learn for yourself how to estimate the current market value of potential investment properties. However, thanks to computers and the Internet, in most real estate markets it’s not that difficult to get a rough estimate of a property’s current market value. This is especially true for real estate investors located in counties where all property ownership, sale and tax assessment records are available online.

The Definition of Market Value

The Appraisal Foundation’s Uniform Standards of Professional Appraisal Practice, defines market value as: “The most probable price a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the sale price isn’t affected by undue stimulus.”

The Difference Between Assessed Value and Appraised Value

The difference between a property’s tax-assessed value and its appraised value is as follows:

1. Tax Assessed Value: Tax-assessed value is the value established by the local taxing authority for a parcel of land and the improvements placed upon the land for property tax purposes. For example, in Florida, owner-occupied single-family houses are generally assessed at around seventy percent of their fair market value by county property appraisers.

2. Appraised Value: Appraised value is the value estimate given to a property by a licensed property appraiser using accepted appraisal methods for the type of property being appraised. For example, the accepted appraisal method to accurately estimate the fair market value for an owner-occupied single-family house is the comparison sales method where a property’s value is based on the recent sale of comparable properties within the same area.

The Three Common Methods Used to Estimate Property Values

The three most common methods used by property appraisers to estimate property values are the:

1. Comparison Sales Method: The comparison sales method bases a property’s value on the recent sale prices of properties that are within the same area and comparable in size, quality, amenities and features.

2. Income Method: The income method is used to estimate the value of an income producing property based on the net income the property produces.

3. Replacement Cost Method: The replacement cost method is based on what it would cost to replace the improvements on property using similar construction materials and construction methods.

The Comparison Sales Method of Estimating a Property’s Value

The comparison sales method of estimating a property’s value is based on the recent sale prices of properties within the same area that are comparable in size, amenities and features. In order to be accurate, sale price adjustments must be made for comparable properties that have been sold at unrealistically low prices or on overly favorable financial terms not readily available to the buying public.

The Income Method of Estimating a Property’s Value

The income method is used to estimate the value of an income producing property based on the net income the property produces. Under the income method value is calculated using a:

1. Capitalization Rate. The capitalization rate, or cap rate, is calculated by dividing a property’s annual net operating income by its purchase price.

2. Gross Rent Multiplier. The gross rent multiplier, or GRM, is calculated by dividing the purchase price by the property’s monthly gross operating income.

Watch Out for Owners Using Fuzzy Math

A word to the wise: when you read a property’s income and expense statement, you should always go under the assumption that the owner is probably practicing fuzzy math by fudging on the numbers, and telling little white lies to back them up. Also, use a monthly income and expense analysis worksheet like the sample copy below, to cross-check everything that’s listed on a property’s income and expense statement in order to reconcile the statement with receipts and tax returns against what’s shown on:

1. Schedule E (Supplemental Income and Loss) of the owner’s latest federal income tax return.

2. The property’s latest annual tax assessment income and expense statement on file at the county property appraiser or assessor’s office.

3. All of the rental agreements for the past year.

4. Water, sewage, solid waste, gas and electric bills for the past year.

5. Repair and capital improvement bills for the past year.

The Replacement Cost Method of Estimating a Property’s Value

The replacement cost method of estimating a property’s value is based on the cost of replacing the improvements on the property minus the cost of the land to estimate a property’s value. Replacement costs are calculated on a per square foot basis by dividing the total number of square feet in the building by the per square foot construction cost. For example, a two thousand square foot convenience store that cost $375,000 to build would have a replacement cost of $187.50 per square foot, $375,000 divided by 2000.

How to Get Free Building Replacement Cost Estimates

You can usually get a free building replacement cost estimate by calling a local independent insurance broker who represents insurers t
hat specialize in providing property and casualty insurance coverage for residential and commercial buildings. When you call a broker, tell them that you want a replacement cost quote. Property replacement costs are calculated by using a replacement cost formula that’s based on the property’s geographical location and its:

1. Street address.

2. Age.

3. Type of construction.

4. Number of stories.

5. Type of roof.

6. Current use.

7. Heating and cooling system.

8. Square footage.

Use the Eight-Step Approach to Estimate a Property’s Current Market Value

Use the following eight-step approach and the current value worksheet on the following page to get a rough estimate of a potential investment property’s current market value:

Step # 1: Log onto your county’s property appraiser or assessor’s Web site to obtain the tax assessed value of the property under consideration.

Step # 2: Search your county’s property tax rolls for recent sales of three to five properties that are comparable in size, amenities and features, and located within two miles of the property under consideration.

Step # 3: Carefully analyze any comparable properties that you find, and make sale price adjustments for differences in amenities, special features and the property’s physical condition.

Step # 4: Verify the income and expenses that are listed on the income and expense statement of the property under consideration.

Step # 5: Analyze the property’s income and expenses for the past twelve months to estimate its net operating income potential.

Step # 6: Calculate the property’s capitalization rate by dividing its potential operating income by the estimated value that you derived from analyzing recent sales of comparable properties in step number three.

Step #7: Estimate the property’s value by multiplying its net operating income by the capitalization rate you came up with for the property.

Step # 8: Calculate the cost of replacing the improvements on the property using the same building materials and method of construction.

Going on holidays are the best part of the year for many families. This is the time they spend together and besides that the parents are having a relaxing and peaceful time. But the holidays can turn into bad experiences sometimes. This is why it is good to know what to do and what kind of precautions to take before going on ski holidays. There are many secrets of all holidays’ destinations and is good to check them out before leaving the home.

In order to enjoy the perfect skiing holiday it is good to know the secrets of it and trying to keep tight to them. Every holiday has its own secrets and these are different depending on who is the person who is going on the holiday because everybody is different and it is not the same things they need and use. One of the secrets of a good holiday is to have the accommodation booked with weeks before going on it. This is important because people are usually going during the same period of time on holidays and this means that the hostels and hotels are usually full and the family probably would not like to be left without a place to sleep. Another secret of this is to have insurance policies for everybody. This is vital when going on holidays, especially a skiing one. Skiing is considered a really dangerous sport and lots of things can happen accidentally, thus it is recommended to make the insurance before going on holidays. The secrets are more and more how we get deeper into the subject and another one of them is to use the proper sport costume and helmet. It is does not matter the person’s skiing skills and years of practice, the protection is anyway vital. Going on a skiing holiday can have bad results and nobody would like this. Having the proper protection against danger, sun and the potential accidents, can save the person a way to the hospital in many cases. All these secrets are good to keep in mind and also to follow for those who are planning a holiday of this kind. There are more secrets to reveal, but those who are interested, will probably try to find out themselves.

Going on skiing holidays is good for health and mind, as well. But there are some secrets of each holiday in order to have a good one. Those are good to search for, find and keep in mind and the problems will stay away.