The Appraisal System

The appraisal system in real estate and land is an inherent part of the way land and property are traded within the United States. Lenders will always have a need for accurate valuations to be produced, so that they can decide how much money to lend on any given property. Given that the vast majority of property traded in the United States has some form of borrowing attached to it, it is easy to see why the need for appraisers is not going to disappear any time soon.

The appraisal system works in everybody's best interests to produce the most accurate valuation possible within the context of an imperfect market. While the system exists primarily to serve the interests of the institutional lenders, it can also have side benefits to both sellers and buyers.

Lenders are in business to make money, and the higher a genuine valuation is, the more money they will make. They obviously do not want to take on any borrowing unless they are sure that the money will be paid back in line with the agreement, but the higher the value is, the more profit they will make. This can obviously worked to the advantage of the seller.

Buyers can also benefit from the activities of the appraiser. Part of the appraiser's job involves doing a very thorough background check into the history of the piece of land, or property. This background check can uncover previous problems which the new owner would have inherited. This can include any tax liens, which will need to be cleared before the lender will consider lending money.

The appraisal system starts off with a thorough inspection of the site. As this inspection is aimed at producing an accurate valuation for the lender, it needs to consider all of the circumstances which could influence the lenders choice. This would include any possibility of rezoning the land, should it prove that then will be more value in the land if it is used for alternative purposes.

In the vast majority of cases, the present use will usually be the most appropriate one. The appraiser needs to carry out a thorough inspection of both the land site and the property thereon. The result of this inspection will be compiled into a report, from which the lender will make the lending choice.

As well as this initial report, it is essential that the lender has knowledge of how values compare in the local area. The other vital component of the appraisal system is the analysis of prices realized by similar properties in the same area, or even within areas where the prices fetched are substantially similar.

These two factors combined will allow for the greatest degree of accuracy that can be afforded. Having said that, appraisal is more of an art than a science, and two highly trained appraisers can look at the same piece of real estate and come to quite different conclusions. The lenders, however, rely to a great degree on appraisals, and the fact that the system functions as well as it does is testimony to the reliability of the appraisal system.

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