What Do I Need to Know About Foreclosure Appraisal

Home in foreclosure or homes that have reverted back to institution’s ownership normally come with unique appraisal challenges and when you are considering purchasing a foreclosed home, a foreclosure appraisal is recommended before you make the purchase. The purpose of the appraisal is to let you have a detailed report about the estimated value of the property you are considering to purchase.

How an appraisal on a foreclosed home works

To get a good understanding of how a foreclosure appraisal works, it is important that you first understand the various methods used in such an appraisal. The following are some of the methods most appraisers tend to use when doing foreclosure appraisals-:

• Market Value – this is the property’s value when compared with other recently sold similar properties in the area. It is likely what the home is likely to sell for when sold in the next 90 days.
• Value in use – this is the value derived from the property by the owner when the property is being utilized. In most cases, the value in use is usually far much less than the market value.
• Insurable value – this refers to how much it could cost to replace the property the amount of value that the homeowner’s insurance would be willing to insure.
• Investment value – this is the value of the property as per a specific investor depending on their preferred use for the property.
• Liquidation value – This is the worth of the property if it fails to sell in the open market i.e. when you are forced to close the sale in a limited duration.

Foreclosures have low appraisals

It is a general trend in the industry that most of the foreclosed houses will be appraised lower than other similar properties with similar features. Various reasons could be responsible for this, such as neglect or vandalism which may contribute to the damage or the overall dilapidation of the property. Therefore, just have in mind that a foreclosed appraisal will always be lower than what you would have expected in normal similar properties.

Property owners will be adamant to allow for the inspection

Most owners of properties in foreclosure will be unwilling to allow an appraisal of the property. Either it is because they don’t want to lose the property or they simply feel bad about letting it go. Your appraiser will have to find a way of dealing with them if they prove to be adamant about the appraisal.