Real estate assessment
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Real estate assessment is a process of analyzing a piece of real property with the aim of determining its value, legal standing and overall condition. This is an essential step for anyone operating with estate, no matter if selling, buying or renting it. To sellers, property assessment allows assigning an adequate price for the real estate in question, which ensures that clients will not be turned away by the discrepancy between the price and the apparent value. To buyers, it helps forming an adequate opinion about a piece of real estate and prevents from being tricked into buying/renting property that is not worth the money. While sometimes the terms ‘property assessment’ and ‘property valuation’ are used interchangeably, these articles imply the following meaning - property assessment encompasses all the possible assessment procedures (including valuation), while property valuation itself only deals with establishing the monetary value of a property.
Property valuation or real estate appraisal is a process of determining the value of a property, usually performed by a certified specialist, especially when the value is determined for tax or mortgage purposes.
The simplest case when a valuation is required, is when a person wishes to buy, sell or rent a property, and thus needs to know how much it is worth. Valuation is especially important to property investors, who cannot afford losing money because of poor pricing. There is a number of factors influencing the value of a property, chiefly the location and improvements. While the value of a location changes at a very slow pace, property improvements and physical condition are a lot more rapid. This is the reason why valuation procedures should be conducted as close to the time of transaction as possible, as only a recent report is able to indicate the true value of a piece of real estate.
It is useful to remember that the value of a property does not equal its price. A valuation procedure only determines the value, while the seller is free to establish any price he/she deems necessary. It is, of course, advisable to keep the price reasonably close to the value, as a big discrepancy between these two is likely to scare away customers, especially if the condition of the property is apparently not in line with the price. However, one should not feel that valuation is a constraint - it is exactly the opposite, a helping guide on how to price the property in the best way possible.
A property condition assessment is a process of determining the technical condition of a piece of real estate, e.g. whether it has any flaws, whether any remodelling works have been performed, etc. A condition assessment is needed for almost any operations with a given property, as it directly affects its value, which, in term, dictates the possible price, possibility of receiving a mortgage and its attractiveness to investors.
Condition assessments are performed by authorized specialists according to regulations set forth by the government. The procedure can be initiated by any party involved in the transaction, but, of course, it should be agreed upon with the owner of the property. The results of such an assessment can serve as a proof in cases when it affects the value of a property, e.g. if a tenant damages the premises, the assessment results, showing the condition of the real estate before and after the lease period, can be used for the purposes of insurance or demanding compensation.
A legal property assessment is a process of clarifying the legal status of a property. It involves checking whether the property is registered in all the relevant government agencies, whether all the renovations have been properly legalized, who is the legal owner of the land the property is built on, etc. While these procedures usually do not impact the pricing of a property, they are essential in making sure that the property can be legally transferred from a seller to a buyer. If something is not in order, the transaction cannot be completed.
Legal assessment of real estate also includes the examination of the current state of a property, i.e. when it is not done for the purposes of selling or leasing. This can be done to review active lease contracts, household utility invoices or any other documents related to the property.
Due diligence is an investigation of a piece of real estate with the aim of revealing the legality of its status, the credibility of its owner, as well as any other information that is essential to know before concluding any agreements or transactions. In other terms, due diligence allows you as a seller, buyer, renter or tenant to know everything you need to know before concluding any agreements about the property in question, thus ensuring that the deal will go smoothly and there will be no unexpected problems afterwards.
Due diligence is potentially a tailor-made, highly specialized process, the actual course of which depends on each individual piece of real estate and also your needs. It also depends on what a service provider is able to do. If you are not sure what your needs are, property assistance companies usually offer a standard due diligence package that covers all the essential needs, which can then be customized according to your wishes.
The ultimate aim of an extended due diligence procedure is to remove all the possible risks that are not dependent on your personal judgement of the property. That is, the goal is to provide you with the maximum information available, so that your final decision about investing or not investing in a piece of real estate (here we refer to investing in the broader sense of the term) is as informed as possible, safeguarding your from any factors beyond your control.