Estate Valuation

A real estate valuation is an appraisal or an estimate of what a property is worth. Lenders require a property to be evaluated when buyers are looking to take out mortgage loans or for:

• a determination of an asking price when the home is going to be put up for sale
• a valuation of an estate in comparison to the structure of the property
• insurance purposes
• tax purposes.

Keep in mind that an estate valuation is an estimation and does not decide the market rate. An estate appraisal does not mean a property has been thoroughly inspected nor does it guarantee the condition of the property.

The Real Estate Valuation Process

To properly evaluate an estate, an appraiser will use one of the following methods:

• The cost approach determines property value based on how much it would cost to replace the property, using the current rates minus depreciation.
• The income approach weighs the income potential of the property, setting property value according to how much money the owner will make in rent or property sales.
• The price method determines property value by comparing the estate to comparable properties in the area that have been recently sold.

Sometimes, a combination of these methods is used to estimate the value of an estate.

Real Estate Comparative Valuation

A real estate comparative valuation refers to the event in which a real estate agent compares an estate to similar properties in the area. This process takes place before a home is listed for sale, and it is not an appraisal. Instead, a real estate comparative valuation is an estimate of the amount of money for which an estate might sell.

When to Get an Estate Valuation

It is wise to obtain an estate valuation when you need a true and accurate evaluation of a property's worth. Sometimes a realtor's appraisal may not correctly reflect the market value. A well-known and recommended appraiser should be used to get the best estimate of a property's value.

Some of the most common types of values appraisers use are:

• investment value that takes into account the value of property for one investor (Investment value is usually higher than the market value of an estate.)
• insurable value that reflects the value of an estate covered by an insurance policy
• liquidation value that reflects the estimated amount of money that property could be sold for quickly
• market value that reflects the estimated amount of what a property is worth on the date of valuation between the buyer and seller
• value-in-use that usually estimates property value below the market value of a property.

While the cost of an appraisal ranges between $150-$300, prices vary by area and appraisal firm.

Life Estate Valuation

A life estate is a term used to describe the ownership of an estate for as long as a person (the "life tenant") is alive. Because a life estate does not continue upon the owner's death, the owner of the life estate cannot leave it to a beneficiary nor can the life estate be inherited. Generally, a life estate is used as an estate-planning tool.