Real estate or home appraisal is a valuation of property by the estimate of an authorized person (appraiser). Some real estate professionals use appraisement, assessment, estimation, evaluation, and valuation to mean appraisal.

Lenders need appraisal before financing a foreclosure property that you are buying. Most lenders use their own or contracted appraisers who evaluate the worth of the foreclosure home to set a value for the lenders. The home that you plan to buy at foreclosure becomes their collateral.

Land or improvements?

Your foreclosure home is composed of two values:

the value of the land, and
the value of the improvements (house, garage, other superstructures on land).

Sometimes, the value of land makes the property a good buy, especially in prominent locations. So, don’t be overly concerned about the condition of the foreclosure property where the land is so valuable.

On the other hand, land may lose value due to the following:

Earthquake
Flood zone
Industrial plants, factories, commercial facilities
Waste disposal/dump sites
Nuclear plants, high-voltage facilities, acid rain etc.
Oil leakage, soil with high radon content

When do you need a home appraisal?

Lenders request appraisals during the financing contingency period or just before the foreclosure sale. In general, the buyer typically has two weeks to obtain financing. The lender will request one of its appraisers to assess the value of the property for its financing.

Remember that lender-requested appraisals are for the benefit of the lender before extending home mortgage loan to you. This appraisal may not necessarily reflect the market price of the foreclosure property.

Having a foreclosure appraisal is also a good idea to make sure that you are really buying undervalued foreclosure property with acceptable defects and problems.

Home appraisal methods

Comparative analysis: Easiest and more real life method. Anyone can do it. Check the prices in the home neighborhood and make adjustments for: lot size, square footage, number of rooms, location in neighborhood, age, any additional or missing features.
Reproduction cost: How much would it cost to build it now? Not an easy method. You need to know the cost of construction, lot, and labor costs. Margin of error is high.
Capitalization of income: Great if you intend to lease the property. You can impress your lenders with the income potential as they are concerned with your repayment of loan on time with no problem.

Who needs foreclosure home appraisal?

Lenders - banks, credit unions and other lenders want to know before they extend a loan for you. Typically, they finance 80 percent of the appraised value by leaving 20 percent as a cushion. Sub-prime lenders may go up to 100 and even 125 percent.

You need it - It's a good idea to find appraised value for refinancing, getting home line of credit, and before selling. Also review elements of foreclosure home valuation not to miss any item.

Most home appraisers are a member of Appraisal Institute and you can find an appraiser near you at Real Estate Appraiser National Directory. On the other hand, some professional home appraisers are a member of National Association of Independent Fee Appraisers. For more information on home appraisal visit the web site of About