Appraising Residential Real Estate

It may cost you a little up-front money to do so, but I recommend getting an appraisal for your property. You have to verify the value of the properties you are purchasing. Appraising your residential real estate purchases is one way to do that.

One of things HIS Real Estate does in our California market is, every time we get an offer accepted, we spend money on a full BPO (Broker’s Price Opinion). We want to make sure that we have correctly figured the value of the property. If we have offered too much money for the property, we want to know this sooner rather than later.

Even though that appraisal is going to cost me a couple hundred dollars today, it’s better than making that wrong decision that will cost me a couple thousand dollars tomorrow.

I want to make sure that the value is right because a lot of times what happens is, although we purchase in very specific areas, there are those communities or neighborhoods that we don’t know. There might be some circumstances or situations that are not readily apparent.

As an investor, you can make that wrong purchase and be stuck with a property that you just can’t get rid of—because you didn’t want to spend a couple hundred dollars on an appraisal.

A good residential appraisal report tells you many things about the subject property, including a detailed report of the property and comparisons with three similar properties; notes about serious structural damage to the property; observations about anything the appraiser thinks might harm the property’s value such as a smaller than average lot or inadequate access; and information about the overall real estate market in the area and how long the appraiser think it would take to sell the home.

Most properties in urban markets like much of California will be appraised using the above approach, commonly referred to as the sales comparison approach to appraising residential real estate. This method operates under the principle that an individual would not pay more for a subject property that he or she would pay for similar properties around the subject property. In this way the fair market value of the property is largely determined.

So taking this extra step to safeguard your investment makes good business sense. You want to protect yourself. Spend the extra money and make sure that you do your due diligence. It just may be the difference between a good and a bad transaction.