A real estate appraisal, or valuation, is the assessment of the worth of a house depending on several factors. This appraisal is key to you as the buyer for various reasons. The obvious importance of this appraisal is to give you an idea of the most that you should be willing to pay for a property. To be able to weigh the price against clear-cut facts will give you peace of mind, knowing that you did not overpay for your house.

It is extremely important that the price you agree to pay is based on the fair market value for the simple reason that, even if you are willing to pay the price agreed to, if it is not you may be unable to secure a loan if the formal appraisal does not qualify the house for the amount of loan you are asking. Your real estate professional can help you to know whether a price is fair, or you can appraise it for yourself using the following methods.

Real Estate professionals, whether they be Realtors or appraisers, establish valuations in the same manner. Residential and commercial valuations are both determined with the techniques detailed below, but commercial appraisers often employ additional criteria as well, such as criteria related to the income history of the property, to ensure the likelihood that the business in question will have enough profit to cover the mortgage.

The three most important criteria in real estate is: location, location, location; likewise, the most important criteria for appraising properties in a comparative market analysis is comparables. The term comparables is used to mean like property (similar in regards to location, type, cost and so on) and recently sold for an obviously fair market value by an arms length transaction. A list of such comparables can be obtained using MLS records.

Ask your realtor for such a list for each house you are seriously considering. For most of the houses on the list, there will be an estimated price per square foot. To get this rough estimate, the number of bedrooms, bathrooms, square feet and other factors are taken into account along with the sales price. That figure is adjusted plus or minus according to amenities such as square footage, valued features, construction quality, cost, etc.

The term “adjustment” is used in conjunction with the term “comparables”. Comparables establish the base appraisal value of a subject property by comparing like property in a related area to like property. However, there are always dissimilarities and differences between these parcels of real estate. These positive and negative differences must be adjusted up or down so as to arrive at this comparable value for the subject property. Such adjustments are in either dollar values or perhaps percentage amounts.

Another important means of evaluating a property you are considering is by taking a look at the history of market value for the neighborhood. For instance, if the market value of the neighborhood has been steadily rising for the past few years, it means that the probability of the property value in question rising steadily is a good one. On the other hand, if the market has been failing for the last few years, then the property value will, in all probability, continue to decline unless there is some kind of a development planned which might contribute to a change in this market trend.

Informal appraisals are often provided without charge by real estate agents as part of their basic services, but to secure a mortgage or other commitment, a formalized appraisal of your property must be obtained by a certified or licensed professional. The cost of such appraisals depends on the appraiser and the house to be appraised.