Many people may say, "I want to sell my property, but I don't know how much to sell it for."
Indeed, since each piece of real estate is unique, it is very difficult to determine the appropriateness of its value.
Therefore, one of the methods used to calculate the appropriate value of real estate is a real estate appraisal.
In this article, we will explain what a real estate appraisal is, as well as the actual process of conducting one.

What is a Real Estate Appraisal

A Real estate appraisal is a process by which experts determine the appropriate value of land and buildings based on uniform national standards.
The "Law Concerning Real Estate Appraisal" states the following.
Real estate appraisal (valuation) means determining the economic value of real estate (meaning land or buildings or rights other than ownership rights related to these) and expressing the results in terms of value.
The following is a more specific explanation.

Qualifications needed by an appraiser

Not everyone can perform real estate appraisals.
Only those who are qualified as a "real estate appraiser" or "assistant real estate appraiser" are allowed to conduct real estate appraisals.
Incidentally, "real estate appraiser" is one of the three major national qualifications along with lawyers and certified public accountants, and is a very difficult qualification with a pass rate of about 5%.
Real estate appraisal requires advanced knowledge and experience.

Real Estate Appraisal fees

When requesting a real estate appraisal, appraisal fees are charged.
Basically, the higher the real estate price, the higher the appraisal fee.
However, the fee varies depending on the real estate appraisal office, appraiser, and the size of the subject property, so be sure to confirm the fee in advance!

Real Estate Appraisal Method

There are three appraisal methods:

Transaction case comparison method
The transaction case comparison method is a method of appraising real estate by referring to past transactions of properties with conditions similar to those of the property under appraisal.
The approximate value of the subject property is calculated based on the transaction prices of similar properties, and then the price is fine-tuned by taking into account the area and age of the property.
The more transaction examples in the vicinity of the subject property, the more accurate the appraisal results can be.
(Note that if the number of transaction cases is extremely small or only old cases are available, it will not be accurate.)

Capitalization method
The capitalization method is a method of calculating the value of a property based on the future income it is expected to generate.
This method is often used when appraising investment properties such as rental condominiums.
For example, suppose there is a property that generates rental income of 5 million yen per year.
If the target cap rate is set at 5%, the property price can be calculated as "5 million yen / 5% = 100 million yen.

Cost method
The last method is the cost method.
The cost method is a method of calculating the replacement cost of the subject property by adjusting for depreciation based on the age and deterioration of the property.
In other words, the amount by which the value of the subject property declines with the passage of time after construction is subtracted from the cost of constructing a new property exactly the same as the subject property in the same location.
In addition, the depreciation adjustment is based on the following three points:

①Physical Factors
Refers to damage caused by the wear and tear of real estate caused by age and natural effects.

②Functional factors
Poor design, outdated equipment, and inefficiency.

③Economic factors
Declining neighborhoods and declining marketability in comparison to surrounding properties, etc

What is the difference between an Appraisal and an Assessment?

We have explained real estate appraisal as a method to calculate real estate prices, but did you know that there is also real estate assessment as another method?
Although real estate appraisal and real estate assessment are the same in terms of calculating prices, they actually have completely different meanings.

Difference in appraisers

As already mentioned, real estate appraisals can only be performed by those who have a national license as a "real estate appraiser."
However, real estate assessments can be performed by anyone, including employees of real estate companies.

Differences in calculating prices and standards

Real estate appraisals are conducted objectively based on uniform national standards.
Therefore, there is rarely a large difference among real estate appraisers.
In a real estate assessment, however, each real estate company conducts its own investigation based on its own methods and standards.
Therefore, the price calculated by the real estate company often differs.

Different objectives

Real estate appraisals are not only used to calculate the price at the time of sale.
Real estate appraisals are also used when submitting real estate appraisal reports to public agencies such as courts and tax offices.
The appraised value calculated by the real estate appraisal is also important in determining property taxes.
The appraisal requires more expertise and accuracy, as it may be subject to legal liability depending on its content.
On the other hand, the purpose of a real estate assessment is simply to calculate the estimated sale price.
Even if the property cannot be sold at the calculated real estate price, you will not be held liable.

When and How to get an Appraisal

Finally, we will explain when a real estate appraisal is required and how it should be performed.

When a real estate appraisal is required

Real estate appraisals are required for the following:

Real Estate Transaction
First of all, it is in the case of a real estate sales transaction.
By having a fair price calculated by a real estate appraiser, it becomes easy to proceed with the transaction after both parties have agreed to it, and troubles after the transaction can be prevented.
In addition, by having an appraisal, it can be used to get a real estate loan from a financial institution when purchasing real estate.
In such cases, a real estate appraisal is required by financial institutions to prove the fair value of the subject property.

Division of property by inheritance and division of property by divorce
Real estate appraisals are also necessary when dividing property among heirs due to inheritance or when dividing property due to divorce.
In many cases, problems may arise and lead to court proceedings, so it is advisable to have an objective appraisal performed by a real estate appraiser.

Corporate Accounting
In corporate accounting, real estate used to be treated based on the value of the property at the time of acquisition.
Now, however, it is necessary to process real estate based on the market value calculated by real estate appraisals.
It is now required to take into account changes in the value of real estate over time.

Real estate appraisal process

Below are the general steps needed for a real estate appraisal:

1. Put in a request at a Real Estate Appraisal firm
A consignment contract is concluded with the real estate appraisal firm to be commissioned.
It is recommended that you discuss the subject property, the purpose of the real estate appraisal, and the cost in advance.
In addition, several documents are required when concluding the consignment agreement.

●Certified copy of the registry (certificate of all items)
●Map of residence
●Purchase and Sale Agreement
●Explanation of Important Matters document

These are just a few of the required documents.
Be sure to check with the appraisal firm you request, as required documents vary depending on the appraisal firm and the subject property.

2. On-site investigation
Once the consignment contract is signed, the real estate appraiser will conduct an on-site inspection.
Since there are many points that cannot be determined from data alone, it is essential that the appraiser actually visit the property to check the surrounding area and the interior of the property.
In addition, the appraiser will visit the Legal Affairs Bureau and the ward office to collect supplementary information.
(Depending on the subject property, this investigation may take several weeks.)

3. Delivery of Real Estate Appraisal Report
The appraisal report is prepared based on the results of the survey and is completed when it is delivered.
It contains not only the details about the subject property, but also market information such as the population of the area.

In conclusion

In this issue, we have explained the outline of real estate appraisal and the flow of its implementation.
We hope that the differences from a real estate assessment, which simply calculates an estimated sale price, have become clear.
The fact that you can easily request a real estate assessment free of charge is an advantage, but when you need to publicly prove the value of real estate, by all means, get a real estate appraisal performed by a licensed appraiser.