Real Estate Appraisals: A Primer
A home purchase can be the most important financial decision many people might ever consider. It doesn't matter if where you raise your family, a second vacation property or one of many rentals, the purchase of real property is an involved transaction that requires multiple parties to make it all happen.
You're probably familiar with the parties having a role in the transaction. The real estate agent is the most known face in the transaction. Then, the mortgage company provides the money needed to bankroll the transaction. And the title company sees to it that all details of the exchange are completed and that the title is clear to pass from the seller to the buyer.
So, what party makes sure the value of the property is consistent with the amount being paid? This is where the appraiser comes in. We provide an unbiased opinion of what a buyer could expect to pay — or a seller receive — for a property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Appraisal First, Inc. will ensure, you as an interested party, are informed.
Appraisals begin with the property inspection
Our first task at Appraisal First, Inc. is to inspect the property to ascertain its true status. We must see aspects of the property first hand, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they truly are there and are in the condition a reasonable person would expect them to be. The inspection often includes a sketch of the house, ensuring the square footage is accurate and conveying the layout of the property. Most importantly, we look for any obvious features - or defects - that would affect the value of the property.
Back at the office, we use two or three approaches to determining the value of the property: paired sales analysis and, in the case of a rental property, an income approach.
This is where we analyze information on local construction costs, the cost of labor and other elements to determine how much it would cost to replace the property being appraised. This figure usually sets the maximum on what a property would sell for. It's also the least used method.
Analyzing Comparable Sales
Appraisers get to know the subdivisions in which they work. They thoroughly understand the value of specific features to the homeowners of that area. Then, the appraiser researches recent transactions in the vicinity and finds properties which are 'comparable' to the home being appraised. 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 add or subtract from each comparable's sales price so that they are more accurately in line with the features of subject.
An opinion of what the subject might sell for can only be determined once all differences between the comps and the subject have been evaluated. At Appraisal First, Inc., we are experts in knowing the value of real estate features in Springfield and Greene County neighborhoods. The sales comparison approach to value is usually given the most weight when an appraisal is for a home exchange.
Valuation Using the Income Approach
In the case of income producing properties - rental houses for example - we may use an additional way of valuing a property. In this case, the amount of revenue the property produces is taken into consideration along with other rents in the area for comparable properties to derive the current value.
The Bottom Line
Combining information from all approaches, the appraiser is then ready to put down an estimated market value for the property at hand. The estimate of value at the bottom of the appraisal report is not always the final sales price even though it is likely the best indication of what a property is worth. There are always mitigating factors such as the seller's desire to get out of the property, urgency or 'bidding wars' that may adjust the final price up or down. Regardless, the appraised value is often used as a guideline for lenders who don't want to loan a buyer more money than they could get back in the event they had to sell the property again. The bottom line is, an appraiser from Appraisal First, Inc. will guarantee you discover the most accurate property value, so you can make profitable real estate decisions.