Real Estate Appraisal
A real estate appraisal is a theoretical monetary value that is attributed to a property based on technical parameters.
These parameters follow a valuation methodology, which in many countries is established by law. In each real estate appraisal these parameters must be argued in a report.
The real estate appraisal must be prepared by an approved professional, who can be architects, surveyors or engineers. This will depend on whether the real estate to be valued is a house, a flat, a plot of land or an industrial warehouse.
The most common use made of a real estate appraisal report is to acquire a real estate through mortgage credit, which is why it is also often called “mortgage appraisal”. It serves as value to the financial institution when deciding whether to grant a mortgage of one amount or another based on the value of the appraised asset.
What is a real estate appraisal for?
A real estate appraisal can serve us for several purposes, the most important are:
- Obtain a mortgage loan that has the appraised asset as collateral.
- Know a theoretical value with sufficient rigor for the adjudication of inheritances, divorces or as a starting price in auctions.
- Achieve a technical value with a specific regulation that differentiates it from a simple orientative assessment.
It must be taken into account that the higher the appraisal figure, the higher the estimated value of the real estate. This means that you will have more margin when requesting a loan that has said property as collateral.
How is a real estate appraisal calculated?
The factors that are taken into account for a real estate appraisal combine technical and legal aspects. The main ones that determine the economic value of an appraisal are:
- Location: Town, neighborhood, residential area, etc.
- Surface: Two surface data can be given in square meters, useful (not counting the space occupied by the walls) and built (sometimes including common areas of the building).
- Distribution: It is about listing the number of rooms, toilets or patios that the house can have. It also takes into account evaluating the correct use of space.
- State of conservation: It consists of three basic categories, renovated house, in good condition and to be renovated.
- Materials used: Determinants when evaluating the quality of the home, conditioning, for example, the energy rating.
- Orientation: Cardinal point to which the house is directed, that is, north, east, west, south and the combinations that can be given to each other.
- Market price: A little research is made of the latest sales to know the price range in the area.
In addition, legal checks must be carried out that may limit the value of the appraisal, such as knowing if they have any type of official protection.
However, the value of a property can change over time, either due to internal factors (adding improvements) or external factors (positive-negative evolution of the environment).
Example of use in a real estate appraisal
Suppose we want to buy a house that has a sale value of about € 100,000. In turn, we want the bank to finance us 100% of the sale value because we only have saved the purchase and sale expenses, such as local taxes or the real estate commission:
From here, two scenarios can be given:
- If the appraisal value is € 90,000 and the necessary mortgage loan is € 100,000, our savings, in addition to paying the € 15,000 of purchase and sale expenses, must pay the difference of € 10,000.
- If the appraisal value is € 100,000 or more, it will cover the amount we need.
It should be noted that it is not usual for the appraisal value to be charged 100% of the purchase price, the general rule being 80%. That is, if the price is € 100,000, the appraisal value must be € 125,000, since 80% of € 125,000 is the € 100,000 we would need.