One of the most important aspects of the real estate market is also the one that most people don’t spend too much time thinking about: real estate appraisals.
Any type of appraisal serves a crucial purpose: accurately determining the value of the property in question. This is necessary not only to make sure that buyers and sellers are getting a fair price during a transaction, but it’s something that is required by lenders as well. No buyer wants to significantly overpay for a piece of property and no financial institution wants to lend them the money in order to do so. Therefore, the appraisal process becomes a key way to prevent that from happening.
The key part of the process is that an objective third-party comes in, assesses the value of a property and gives their input. They stand to make no money from the transaction in question – they are there to perform a service.
Of course, all of this begs the question – what differences are there in the process of appraising a residential property versus a commercial one? The answer to that question requires you to keep a few key things in mind.
The requirements for being a residential home appraiser will vary depending on the state that someone is operating in – especially in terms of the certifications required. Having said that, the process will roughly be the same everywhere.
A home appraiser will consider a wide range of factors about the property in question, particularly concerning its age. They will spend a significant amount of time on-site, looking at the quality of things like the foundation, the roofing and more. They’ll likely examine the interior to get a closer look at things like windows, doors and plumbing.
But a key part of their job is taking the entire lot into consideration – meaning that they’ll carefully examine the whole plot of land as well. They’ll look at the front and back yards in terms of their size, along with permanent landscaping and other elements like decks or pools.
One of the things that home appraisers are paying close attention to are any significant upgrades that have been made since the last time the property was sold. If a homeowner moved in and put an addition on the back of the house, for example, that is something that will absolutely impact the value.
Once they’ve collected all necessary information (and they will have likely taken photographs in the process), they’ll get to work on looking at what are called “comps” in the area. These are comparable properties that may have similar features to the one the appraiser is currently working on. They’ll look for several homes that have recently sold that have similar designs, features and square footage. They’ll then compile all of this information together and make a determination about what the value of the property actually is.
Commercial appraisal services, as the name suggests, are focused on different types of buildings than residential ones. Here, an appraisal will look at things like retail establishments, apartment complexes or even vacant plots of land.
When purchasing a piece of commercial property, these types of appraisal services are often mandated by the lender in question. Again, the process is similar in that a certified professional will come out and physically visit a site in order to gather information, all of which will then be used to make an educated determination about the actual value of the property in question.
In both situations, an appraiser may use what is referred to as the “cost approach” to make a determination. This is when they give their opinion about what it would cost to essentially reproduce the existing property – subtracting any estimated depreciation that has occurred and adding in the value of the land. This is especially helpful when appraising newer properties that have little or even no depreciation up to this point.
The major difference between residential appraisal services and commercial appraisal services ultimately comes down to which types of factors matter in making that determination. In terms of a commercial property, an appraiser will likely look at things like market conditions and other factors. Obviously, it’s possible to have a “hot” residential real estate market and a “cold” commercial market, and vice versa. So just because home prices are high doesn’t necessarily mean that someone would see the same benefit if they were trying to sell an apartment complex.
Likewise, a residential home appraiser will look at factors that impact not just the home, but the people who will ultimately live there. That includes characteristics about the surrounding neighborhood, the points of attraction that are in the area, the quality of the school districts and more.
In the end, residential appraisal services and commercial appraisal services are both important for the same reason – they help protect buyers, sellers and even lenders during an admittedly complicated real estate transaction. They prevent buyers from significantly overpaying – something that they nor their lender want. They help make sure that sellers get a fair market value for their home or commercial property, which is certainly the desired outcome.
At AmeriMac, we offer incredibly fast appraisal management that is based on a number of important qualities like accuracy, compliance and communication. Faster appraisals and better communication always leads to more efficient closings for our clients. Since 2014, we’ve been proud of the reputation we’ve been able to earn as a leading provider that offers one-on-one service and a level of attention-to-detail that is second to none – and that is one trend that shows no signs of slowing down anytime soon.
If you’re interested in finding out more information about the major differences between residential appraisal services and commercial appraisal services, or if you just have additional questions you’d like to see answered in a bit more detail, please don’t delay – contact AmeriMac Appraisal Management today.