What is an appraisal?
An appraisal is a report that’s performed by a licensed appraiser. They go out to the subject property and look at the size, square footage, lot size, age, and different amenities. Amenities include solar panels, upgraded bathrooms or kitchen. Does it have a pool, or a shop? Is the roof new or old? Then the appraiser puts together a report that includes other properties in the area that have sold that are very similar. They will make comparisons side by side with those comparable homes, or “comps”, and come up with a value based on that information. An appraiser’s most common client is a mortgage banking institution. That appraiser is hired to act as the bank’s “eyes” to see if that property is worth what the bank will be lending on. For lending institutions giving out a government backed loan, such as an FHA or a VA loan, an appraiser must be specially certified with an FHA or VA appraisers license. Appraisals can cost $500-$1000, depending on the appraiser.
What is a market analysis?
A market analysis is essentially the same thing, except it is performed by a real estate professional. But the process is the same. The realtor will go out and takes a look at a property and all of its amenities. Then, looking at the current homes for sale, pending sales and past sales that realtor will come up with a range of what they think the home would sell for if it went on the market that day. Home owners will often get a market analysis if they are thinking about selling their home. They also will often ask more than one realtor to give them a market analysis, and use it as a litmus test to see which realtor they want to hire. A market analysis is a free service performed by nearly every realtor.
Which one is better?
An appraisal and a market analysis are both an opinion. Each appraiser studies the comps and amenities and will come up with a value based on their interpretation. Sometimes two appraisers can come up with different values of the same home. A realtor does the same thing. The main difference between an appraisal and a market analysis is that an appraisal often happens after the home has already been exposed to the market and received an offer from a ready, willing and able buyer. A market analysis is most often created before the market has seen that home and the realtor must use their knowledge of the market to predict what that home would sell for. A good realtor will get it right nearly every time. Set side by side, if an appraiser were to go out and perform an appraisal on a home before it is exposed to the open market, and a realtor were to create a market analysis of that same home at the same time, the two should be similar. This is because both the appraiser and the realtor are going to be looking at the same market activity.
The Final Say
A buyer and a seller, negotiating a contract, are ultimately the ones who will determine fair market value. Worded another way is, what an able buyer wants to pay, and what a motivated seller is willing to take for a sale becomes that property’s fair market value. So how do home prices rise? When more and more buyers are able and willing to pay more than what a home is listed for sale at, then those sales become next month’s comps. And so on. Appraisers and realtors alike try not to go further back than three months when looking at past sales.
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