Since a mortgage is a loan secured by a piece of real property, a crucial factor is in the correct value of the property in question.
Property value can be determined in a number of ways:
- The market value of the property - that is, what a buyer will pay for it and what other comparable properties (comps) in the neighborhood have recently sold for.
- The appraised value of the property - that is, what a trained and licensed professional deems the property to be worth based on an inspection, comps, and a thorough analysis of the property and its neighborhood.
- The replacement value of the property - that is, what an appraiser estimates the cost to be for building a house of similar size and construction on a vacant lot. The appraiser reduces this cost by an age factor that takes into account deterioration and depreciation.
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