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What is the True Value of Your Home?

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What is an appraisal, and why should you get one? An “appraisal is defined as an estimate of value, as for sale, assessment, and taxation.”[1] It is related to real estate in general, and to co-ops and condos specifically. Appraisals are usually required by financial companies that provide mortgages and loans. Jonathan Miller, the President and CEO of Miller Samuel, explains how the appraisal process is kept neutral. “In a real estate transaction, everyone has some sort of connection to the transaction except the appraiser. The brokers don’t get paid if the transaction doesn’t close, but whether the transaction closes or not, the appraiser gets paid.”[2] The process is usually kept very uniform throughout the country, by using a methodology that is kept consistent and reliable.

“Appraisal methodology rests on three approaches to determining value for any given piece of property. They are the cost approach; the comparable sales or market approach; and the income approach.”[3] The cost approach is the most simple, yet least used approach. It involves calculating the value of each item on the property, which includes bricks, tiles, and concrete. Then the appraiser takes into account the age of the items, their usage, and the actual price of the land. The next approach is called the comparable sales or market approach. This type of appraisal is most commonly used in individual homes, co-ops, and condos. It looks at the recently sold prices of similar apartments in the neighborhood, and adjusts this base price based on factors such as the types of appliances and finishes. The third approach is called the income approach. It is primarily used in income producing properties, such as retail centers. “The theory behind this approach to determining value is that a property can command a specific amount in rent and has specific expenses… Income approach appraisals are generally required for acquisition and refinance of mortgages, including underlying permanent mortgages in co-op buildings.”[4]

Appraisals can be requested for a variety of reasons. When the property’s underlying permanent mortgage is up, the building would require an appraisal to refinance. The building would be valued by the sum of each individual share. Appraisals are also used by insurance companies who are looking to value the replacement of the property in event of a total loss such as an earthquake or fire. Appraising is a key component in completing financial transaction, and it helps that appraisers are truly neutral in the process.


[1] Sidransky, A.J. (2018 November). The Appraisal Process. Retrieved from The Cooperator https://cooperator.com/article/the-appraisal-process/full#cut Accessed on December 3, 2018.

[2] Id.

[3] Id.

[4] Id.

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