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1. What Can You Afford >>
Quick Guide through the CT Mortgage Puzzle
APPRAISALS
Appraising property can sometimes be seen 01 as an art, not an exact science. Appraisals rely heavily on the experience, education and judgements of the appraiser. That is why it is not uncommon to obtain different values from 02 different appraisers on the same property.
Even though appraisals are based on the 03 appraiser's educated opinion, there are specific methods used to establish a fair market value. Fair market value is defined as the highest price a property would bring in a competitive housing market 05 today.
There are 4 steps involved in an appraisal. They are:
1. Identify the property and its 06 surrounding neighborhood.
2. Gather and analyze data including an inspection of the property.
3. Apply the 3 appraisal methods to 07 determine value.
4. Reconcile values
By using more than one method of evaluation, 08 it acts as a type of checks and balances on the other two methods to establish a more accurate value.
The three appraisal methods are:09
The Sales Comparison Approach. This method compares the subject property to similar properties known as comparables or "comps." These "comps" 10 are properties that have recently sold and closed, usually in the last 6 months. Most Connecticut mortgage lenders require 3 comparable properties to be used with each appraisal. 11 The sales comparison approach compares a variety of features in each comp such as, price paid, number of rooms, square footage, amenities, age, style and location to the subject property. 12
The appraiser adjusts the comparable properties to establish a value based on what they would sell for in today's market and not what they 13 actually sold for. The appraiser also adjusts the sales price of each comp to reflect any differences as compared to the subject property (2 Y2 baths as compared to 2 in the subject property). 14
After comparing the properties to the subject, the appraiser reconciles the revised sales prices of these comps to determine a value for the 15 subject property.
Cost Approach. This method is based on estimating the dollar amount needed to produce an exact replica of the property including size, 16 condition and location. This evaluation weighs heavily for a newer property rather than an existing one.
Three estimates are made in the cost approach - site value, replacement or reproduction and accrued depreciation. 17
Site value looks to see if the subject property reflects the highest and best use in today's market.
Replacement cost is the amount 18 estimated to construct this home at current prices exactly as it is. Reproduction cost is the value that would be found for similar properties that were used in the same manner as the subject property. 19 The cost approach can be based on square footage costs,
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