Why You Need A Property Appraisal
The valuation of your properties is an essential component of knowing the overall worth of your investment portfolio. Property appraisals are not only required when buying or selling a property, but they're also essential for tax assessment appeals, estate planning, market trend studies, portfolio analysis, divorces, partnership, and partial interests, bankruptcies, refinancing, eminent domain takings, easements on properties, purchasing a residential or commercial property, fair market rental information, taking cash out of a property, opening lines of credit, and a myriad more of reasons involving valuation. An objective Property Appraisal will help you make clear cut decisions on how to manage your Current Investments.
Basics of Property Appraisals-Property appraisers are certified professionals who are hired to complete a residential or commercial inspection. During the inspection, the appraiser will inspect the size and quality of the property. They also judge the overall condition of the property. After their inspection, they'll pull up recent sales of similar properties within the area. Based on their collection data, they'll present a fair market valuation summary report objectively based on all the information known if just using the comparable sales approach which is one of three methods of evaluation.
One of the primary uses of appraisals is the determination of a property's listing price. Another significant reason to use a property appraiser is to evaluate investment return. If you are considering a remodel, you'll want to see what the estimated value will be for the property after improvements are made. An appraisal will help determine your budget during the renovation project. For instance, if you own a $275,000 property, but no other houses in the neighborhood have sold for more than $300,000, you would not want to invest large amounts of money in upgrades.
1031 Exchange Benefits
Property appraisals are also important if you plan to do a 1031 exchange. The fair market value of the property would determine if you qualify for a 1031 exchange. Under IRC Section 1031, the federal government states that no gains or losses will be recognized if a business or investment property is exchanged for like-kind property. The exchange leaves room for significant portfolio growth without the financial penalties associated with capital gain taxes.
To qualify for a 1031 exchange, you must trade up for a property that is equal to or higher than the fair market value price given to you by a certified appraiser. All net proceeds made during the property sale must be put toward a down payment on the replacement property. Those are general statements as each transaction must be viewed individually as to the current owner's basis, mortgage position, & other criteria.
An expert real estate appraiser is vital since there are many rules investors must follow to qualify for a 1031 exchange. To qualify for the full tax break, the appraisal will have to prove that the client is spending an equal or greater amount of the exchange value. One of the players needed in completing your 1031 exchange is a RE expert including an appraiser. IRS 1031 rules have to be followed including escrow, using a qualified intermediary, and deed.