Difference Between Property Appraisal and Property Valuation
Planning to invest or sell and confused between property appraisal and property valuation?
When you're buying or selling property in any kind of real estate market, it's a good idea to make sure you know the difference between an appraisal and a valuation.
The main difference between property appraisal and valuation is that property appraisal is a process of determining the market value of a piece of real estate, while property valuation is the process of determining a reasonable price for investment or determining if it’s worth it.
Both are important; however, if you don't know the difference, then you could be in for a surprise later down the road.
So let’s dig deep into more differences between both.
Property Appraisal vs. Property Valuation
Definitive Value of Property Appraisal and Property Valuation
What is property appraisal?
A property appraisal is often used in mortgage lending and for estate planning, tax assessment, and insurance purposes.
An appraiser will usually inspect the property and compare it to similar properties sold within the past six months. The appraiser will then come up with an estimated value based on these sales prices, although other factors, such as location and condition, can be considered.
What is property valuation?
Property valuation takes into account more than just recent comparable sales; it also considers how much money someone could earn by renting out their home or apartment, as well as vacancy rates in an area.
A formal valuation is also done for assessment purposes, not limited to comparing similar properties. The qualified valuer may also consider other factors such as the size of the lot, improvements made to buildings on the property, and any special features that might affect its value (such as having waterfront access).
A professional real estate appraiser has training and experience to help them make these considerations when performing an appraisal.
Method of Estimation
An appraisal is usually conducted by experts hired by lenders or by government agencies such as banks, insurance companies, and government agencies like the IRS.
Formal property valuation is done by an independent appraiser, like a real estate agent, who can be hired by anyone who wants their property valued.
Purpose of the Estimation
Usually, property appraisals are done by a real estate agent to give an estimate of how much the property settlement is worth. Real estate agencies provide free property appraisals with a written report by comparing recent comparable sales data.
A registered valuer often conducts property valuations in case of property settlements, dispute resolution or any other requirement for a detailed report from a legal perspective.
Purpose of Appraisal and Property Valuation
The appraisal process is used primarily by lenders when deciding whether they want to lend money on a property. An appraisal aims to determine what mortgage lenders should be willing to lend on a piece of property based on its condition, location, and other factors. Often, real estate agents conduct free property appraisals to give the buyers the property value to estimate the selling price or the property's current market worth.
Property valuation is similar to an appraisal, but it uses data from other sources such as public records to arrive at an estimated price for a given property.
The valuation process is much broader in scope and can be used by anyone who wants to know how much something is worth, whether for insurance purposes or real estate appraisal and planning purposes.
Inclusions in a Property Appraisals vs. Property Valuations
A property appraisal is a professional estimate of a property's value. It includes an opinion of the property's fair local market value. The real estate agent usually projects the market prices based on the value of the property in the last six months.
On the other hand, a property valuation report is a more detailed independent, and unbiased point on the deceased estate settlements or the actual value of a property that goes beyond the property settlement. Real estate agents include the current condition of the building structure, the property's maintenance requirements, renovations, and refurbishments necessary to factor along with the local market prices.
This written report of the property valuations is often conducted by an experienced real estate agent or a registered valuer to give an actual account of the property purchase. In some cases, it can also include the environmental risks, legal standing, street appeal, planning restrictions, and other particular property details that can influence the likely selling price.
Property appraisal can be used in conjunction with property valuation to help determine what kind of profit potential a potential buyer might have if they were to purchase a piece of real estate at its current market value rather than its actual listing price.
So based on the purpose of your estimation, you can either go with property appraisal or property valuation reports.