Valuations, Assessments, Appraisals 101


Valuations, Assessments, Appraisals 101We’ll try not to make this article too mind-boggling, but there’s not really too much tom foolery we can put into an informative article on valuations! 🙂

To begin, let’s look at the definition of ‘valuation’:

An estimation of something’s worth, esp. one carried out by a professional appraiser. (Merriam Webster Dictionary)

In Barbados you may hear many people refer to an appraisal as a valuation, which in terms of real estate, is the individual opinion of a Valuer based on facts available with which gives you “market value” of a property.

Residential real estate appraisals

What is it for? — An appraisal helps to establish the market value of a property. “Market Value” is defined as the price a property is likely to sell for in an open and competitive market.

Who needs it? — Banks and any mortgage facility will require an appraisal to be completed in order to secure a loan being applied for. The value of the property will directly correlate with how much the bank will lend you.

Comparative market analysis (CMA)

If you want to determine a realistic asking price for your Barbados home, real estate professionals tend to use CMAs. Experienced agents often come very close to an appraisal price with their CMAS, but an appraiser’s report is much more detailed–and is the only valuation report a bank will consider when deciding whether or not to lend the money.

Facts about appraisers

  1. Appraisers/valuers are licensed professionals who are familiar with the local real estate market.
  2. The lending facility will usually have a recommended valuer for you to work with.
  3. The appraiser should not be associated with either the lending facility or the person involved in the transaction (i.e. you).

What is shown on a residential appraisal report?

Valuations tend to be very detailed but here are a few examples of what to expect:

  1. Information on the subject property, along with 3 comparative properties shown adjacent to each other.
  2. An evaluation of the Barbados real estate market as a whole.
  3. Statements about issues the appraiser feels have a negative impact on the value of the property.
  4. Itemized notes on structural issues that will also effect the property value.
  5. An estimate of how long the property will take to sell, based on the movement of other nearby comparable properties in the area.
  6. A description of the neighbourhood/community the property is situated in.

The Sales Comparison Approach versus the Cost Approach

Appraisers tend to use either the sales comparison approach (SCA) or the cost approach (CA) when carrying out valuations on residential property. The SCA method is where a valuer estimates the market value of the subject property by comparing it to other properties that are similar, and that have sold in the surrounding area. These ‘similar properties’ are referred to as comparables. In order to achieve the best comparables, the valuer must find properties that are as close as possible in structure, size and age (to name a few) to the subject property as possible. The result is a figure that shows what each comparable would have sold for if it had the same components as the subject.

On the other hand, appraisers tend to use the cost approach with new properties where the building costs can be accounted for. With this approach the valuer achieves what is called a ‘replacement cost’ and is where an estimate is calculated for the cost to replace the structure if it were destroyed.

Some potential speed bumps

When it comes to finalizing your loan, the valuation is very important, because the bank depends on the property value to secure its investment. If for some reason, the valuation results in a lower value than the asking price, you are in danger of the bank declining the loan. If the valuer achieves an estimated selling time that surpasses that of other property’s in the area, the bank will probably not be satisfied. There are quite a few other things that need to be in place and that determine whether are not you qualify for a loan.

To set the record straight…

Appraisers are not there to inspect your home, therefore they will not test your appliances or check your roof for leaks. Instead, valuers take note of obvious issues that can be seen to the common eye and are not to be held responsible for determining if your home is in good condition.

What if your valuation comes in low?

Issues can be rectified in order to tick the boxes and increase the value of your property, so don’t worry, look at a low valuation as a means to improving the value of your property in order to gain the best bang for your buck.

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