An Overview of Appraisals
Purchasing or selling real estate could be the biggest transaction you could ever make. It doesn’t matter if it’s a main residence, a seasonal vacation home or an investment, the purchase of real property is a detailed transaction that requires multiple parties to pull it all off. An appraisal helps you make an educated decision.
To learn more about appraising, call us today to talk about your specific property or send us an email.
You’re probably familiar with the parties taking part in the transaction. The real estate agent is the most recognizable face in the exchange. Next, the mortgage company provides the money needed to finance the deal. Ensuring all aspects of the transaction are completed and that a clear title passes to the buyer from the seller is the title company.
So what party is responsible for making sure the property is consistent with the amount being paid? In comes the appraiser. We provide an unbiased opinion of what a buyer might expect to pay – or a seller receive – for a parcel of real estate, where both buyer and seller are informed parties. A professional certified appraiser from Home Appraisals, Inc. will ensure you are informed.
The inspection is where an appraisal starts
Our first responsibility of the appraiser is to inspect the property to ascertain its true status. We must actually view aspects of the property, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they truly are there and are in the shape a typical person would expect them to be. The inspection often includes a sketch of the house, ensuring the square footage is correct and conveying the layout of the property. Most importantly, the appraiser identifies any obvious amenities – or defects – that would have an impact on the value of the property.
Next, after the inspection, an appraiser employs two or three approaches when determining the value of the property: Replacement Cost in homes less than five years old, Sales Comparision Approach and in the case of a rental property, the Income Approach.
Here, we gather information on local construction costs, the cost of labor and other factors to derive how much it would cost to construct a property comparable to the one being appraised. This estimate often sets the maximum on what a property would sell for. It’s also the least used predictor of value.
Appraisers become very familiar with the subdivisions in which they work. We innately understand the value of particular features to the residents of that area. Then, the appraiser researches recent sales in close proximity to the subject and finds properties which are ‘comparable’ to the real estate in question. By assigning a dollar value to certain items such as square footage, additional bathrooms, hardwood floors, fireplaces or view lots (just to name a few), we adjust the comparable properties so that they more accurately match the features of subject property.
For example, if the comparable property has a three car garage and the subject only has a one car garage, the appraiser may subtract the value of the extra two garages from the sales price of the comparable.
But, in the case where the subject has something such as an extra bath room that a comparable doesn’t have, the appraiser might add the value of that bath room to the comparable property.
When it comes to valuing features of homes, Home Appraisals, Inc. is your local authority. The sales comparison approach to value is most often given the most importance when an appraisal is for Fair Market Value.
Valuation Using the Income Approach
A third way of valuing real estate is sometimes applied when a neighborhood has a measurable number of rental properties or when appraising a multi-family building. In this case, the amount of income the property produces is taken into consideration along with other rents in the area for comparable properties to give an indicator of the current value.
Arriving at a Value Conclusion
Combining information from all applicable approaches, the appraiser is then ready to state an estimated market value for the property at hand. Note: While this amount is probably the best indication of what a property would sell for in an open market, it probably will not be the price at which the property closes. It’s not uncommon for prices to be driven up or down by extenuating circumstances like the motivation or urgency of a seller or ‘bidding wars’. But the appraised value is typically used as a guideline for lenders who don’t want to loan a buyer more money than they could recover in the event they had to put the property on the market again. Here’s what it all boils down to: An appraiser from Home Appraisals, Inc. will guarantee you discover the most fair and balanced property value, so you can make the most informed real estate decisions.