If you have decided to invest in a home, an apartment, or a condo using your current finances or through a mortgage, or are planning to sell your home, you need a home appraisal. A home appraisal is an essential part of the transaction. Whether you are a buyer, seller, or owner, you need to know what home appraisals are and how they work in determining a home’s value.
What is a Home Appraisal?
A home appraisal is the evaluation of the current market value of the required property. The market value is the highest possible price of a home in terms of money, which will bring in a competitive and open market under all the conditions obligatory for a fair sale. Appraisals are important for sale-purchase dealings and are common in refinance transactions. Every time a property is purchased, it involves bank financing, and the bank will require performing an appraisal.
A home appraisal determines if the seller is giving an appropriate contract price in consideration with the condition of the home, its location, and features. If making a refinance transaction, the lender is assured by the appraisal that it is not charging additional money that the worth of the home. The appraisal also attempts to protect the bank from mortgage scams by funding more than the actual value of the property.
When investing in a home, it is important to know the difference between single-family homes and multi-family homes. A real estate home that consists of a single property and accommodates just one family is a Single-family home; this property can be a condo, a townhouse, an apartment, or a house.
On the other hand, real estate properties that have more than a solo unit and can accommodate more than one family is called a Multi-family home; this property can be a duplex, a triplex, or an apartment building to name a few.
To have a look as to how home appraisals, while investing in condos, can differ for single-family homes and multi-family homes, keep reading further.
A condominium, also called a condo, in short, is an individually owned unit within the other units of a building. The owners of a condo mutually share common areas such as the garage, pool elevators, hallways, gyms, and other common zones. Condos are typically units in sky-scrapers, but some separate condos are also found in the market.
Architecturally, condos and apartments look the same. People may often confuse the two. Actually, the difference between the two is ‘possession.’ You own a condo while you rent an apartment. In some areas, however, you can also buy an apartment.
Both residences are multi-storied, having units on each that include shared services and common zones mentioned above. In some communities, you can also rent condos to tenants; it is not a must rule. It depends on your own finances. For any home type, you need a large investment for a down payment and closing costs. Renting a condo can be considered a good opportunity if you need to have a trial before investing in a long-term ownership commitment.
To have an insight into how single-family homes would have a diverse appraisal from multi-family homes, let us have an in-depth look into the similarities and differences between the two real estate investments.
Differences between single-family homes:
Single-family homes are more affordable than multi-family homes. They have lower investment cost that makes it more affordable. The net cost is not only affected by the property price alone but also other factors such as insurance rates and utility expenses.
The appreciation of single-family homes is higher than multi-family ones. The difference in demand is due to the value of the property. Multi-family properties are valued based on land and their net income; meanwhile, single-family properties are focused solely on supply and demand, and the demand for single-family property is always high.
Tenants renting single-family homes usually accept the rental property as their own homes and take good care of its condition. Moreover, they keep good coordination with the owner. Single-family properties have lower revenue but make it easy to manage for the first time investors in real estate.
Difference between multi-family homes:
This is the main reason investors opt for multi-family homes for real estate investment. Compared to a single-family home where the investor receives just one source of rental income from a single tenant, a multi-family home makes a big difference.
Vacancies in multi-family homes are not absent and are certainly less costly than single-family homes. Even if one or the other unit is not on rent, the investor will still make income from other units on rent.
Which has a higher appraisal value?
Properties are evaluated on the rental income they generate, and hence multi-family homes get a higher appraisal value than single-family homes. The evaluation of the property will be dependent on the efforts and ingenuity of the investor.
In conclusion, looking at the appraisal of condo vs. single-family homes vs. multi-family homes, all can be profitable depending on the type of investment the owner wants to make. Investing in bulk can be risky yet profitable. Meanwhile, investing in single homes can be more stable and long term investment. It hinges on your own preferences, budget, and choices.