Estimating the value of real estate is necessary for a variety of efforts, including real estate financing, listing real estate for sale, analyzing investments, insuring property, and taxing property. ‘immovable. For most people, determining the asking or buying price of a property is the most useful application of real estate appraisal.
Real estate appraisal, real estate appraisal or real estate appraisal is the process of developing a value opinion for real estate (usually market value). Real estate transactions often require appraisals because they are infrequent and each property is unique (in particular its condition, a key valuation factor), unlike the shares of companies which are traded daily and are identical (therefore a Walrasian auction like a stock market is unrealistic). Location also plays a key role in valuation. However, since the property cannot change location, it is often improvements or improvements to the home that can change its value. The reports of a certified appraiser form the basis of mortgage loans, settlement areas and divorces, taxes, etc. Sometimes an appraisal report is used to establish a sale price for a property. When determining the value of a property for sale, it is more common to consult a real estate agent and use their appraisal report, commonly referred to as a benchmarking analysis (MCA). Realtors have better local knowledge than appraisers and unlike appraisers they have more than likely been in the comparable properties used in the reports.
Types of value
There are several types and definitions of value sought after by real estate agents and appraisers. Some of the most common are:
Market value – the estimated amount for which an asset or liability is expected to be exchanged on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after appropriate marketing and when the the parties have each acted knowingly, prudently and without constraint.
Value used, or use value – The actual net value (NPV) of a cash flow that an asset generates for a specific owner for a specific use. Value in use is the value to a particular user and can be greater or less than the market value of a property.
Investment value – is the value to a particular investor, and may or may not be greater than the market value of a property. The differences between an asset’s investment value and its market value motivate buyers or sellers to enter the market. International valuation standards (IVS) define:
Investment Value – the value of an asset to the owner or potential owner for individual investment or operational purposes.
Liquidation value – can be analyzed as a forced liquidation or an orderly liquidation and is a standard of value commonly sought in bankruptcy proceedings. It assumes a seller who is forced to sell after an exposure period less than the normal market time period.