What is an Appraisal?
Appraising a property is not an exact science! Therefore, the appraisal may differ significantly from case to case and between different appraisers.
So, what is “appraised value” and how does it compare to other values?
An appraisal is nothing more than an “objective opinion of value” for buying and selling purpose. This type of appraisal is solely based on market value and not on taxable value. That makes a huge difference because the taxable value is always a lot lower compared to the market value. For example can tax exemptions, like homestead exemption or exemptions for veterans, lower the taxable value significantly.
Replacement and Insurance Value
There are also more types of different values including replacement value and insurance value. All four values will show a different number. All values make perfect sense.
The appraisal based on market value is never a constant number. Changes in market conditions can dramatically alter appraised values. Usually, that happens slowly. But in 2008 it happened almost overnight. The same home which had an appraised value of $300,000 in 2001 had probably an appraised value of $600,000 in 2007. In 2008 it was most likely back to $400,000 or less. This example shows that the value of a property is always fluctuating. Sometimes dramatic events happen. The crash in 2008 evaporated more than 50% of the home values
How is an appraisal done?
An appraisal is usually done by comparing equal homes in the neighborhood which sold within the last six months. The appraiser needs to be very careful because he doesn’t want to compare apples to oranges. Comparing a two story concrete block home with a manufactured home doesn’t make sense at all. Very rarely are the homes in the neighborhood identical with the subject home.
Adding and Subtracting
Therefore, the appraiser is using a unique system where he is adding or subtracting the value of certain features. Does the comparable have a pool but the subject not? Now he needs to subtract the value of a swimming pool from that home. Does the comparable have a bedroom more? Same thing like before.
All that subtracting and adding keeps the guy busy for a while. It can sometimes be nerve wrecking when there are no really comparable homes in the neighborhood.
With our two examples, you recognize already the precision of an appraisal. How do you precisely evaluate the price of a pool? And what is the exact price of a bedroom? An appraisal always contains an element of subjectivity.
No special considerations
Appraised value does never consider special considerations, like the need to sell rapidly.