Appraisal — is an assessment of the property (house, business, collectible) aimed to define its market value. The appraisal is made by the corresponding members of authorized organizations or regulatory authorities. Usually, such an assessment is necessary to receive insurance and define the amount of property tax or the selling price. Also, it helps exclude the conflicts between the heirs.
Types of Appraisals
There are several types of appraisals. Their procedure depends on the object of assessment. Each assessment should be effectuated by a qualified professional.
Home appraisal — is an assessment of a dwelling place. It is a necessary procedure during the sale or purchase of a house. Also, it is necessary to refinance the mortgage. Refinancing is the reassessment of a loan according to the updated interest rates.
A home appraisal is necessary to prove that the current price corresponds to the current state of the house, depending on the conveniences. Plus, it helps the banks and landlords to define the appropriate cost of the rent. In case of default, banks apply the appraisal as the valuation to secure themselves from the nonpayments of the borrower. If the house is in the state of foreclosure, it should be resold to help the lender cover the losses from the mortgage.
When the bank provides the mortgage, it offers the total value at the moment of sale. After this, the borrower has to pay the full amount and the percentage of interest. The home appraisal helps to define this percentage.
It is necessary to distinguish the home appraisal from the home inspection. The home appraisal is the examination of the visual state of the house without the examination of the in-house communication. The appraiser evaluates only the overall value of accommodation.
A home inspection is a detailed examination of the house aimed to identify potential problems. It includes the assessment of both the visual state and the communications. The home inspection is carried out separately from the home appraisal.
Appraisal of collectibles — is an assessment of the items valued and sought by collectors. Mostly, this appraisal is required for jewelry, rare coins and stamps, fine art, sporting memorabilia, and equipment, musical instruments, and firearms. The owners of collectibles look for appraisal to get a refund in case of their damage or theft or to define their value for further sale.
To get the collectible appraised, it is better to contact the professional appraiser organization and find a certified specialist. Not all appraisers know how to work with antiques. Also, it is better to choose an appraiser who charges a flat fee or hourly rate. It will allow the owner to avoid the conflict of interest and receive a precise evaluation.
Appraisal of business — — is an assessment of a company. Such appraisal is often required in case of the sale or purchase of a business, for litigation, tax reporting, and insurance purposes.
Sometimes this term is confused with the definition “business valuation”. However, these are different processes. The appraisal is a part of the business valuation. Appraisal has no legal standing, and it serves as a guide. The business valuation is an assessment of a definitive value that provides complete information.
There are several methods to determine the value of a business:
- Income approach. The appraiser evaluates the expected benefits, changes in income, profits, working capital needs, and capital costs.
- Market approach. The appraiser evaluates the company in comparison with similar firms or transactions.
- Asset approach. The appraiser evaluates the fair market value without the debts.
Appraisal and insurance
Sometimes the insurance policy requires the appraisal of the insured property. It is necessary to define the amount of refund in case of damage or theft. The appraisal defines its value. Usually, the appraisal is included in the home insurance, but if the homeowner has rare collectibles, art objects, or hereditary jewels they may obtain the insurance for the luxury object and cover them.