What Are the Parts of an Appraisal?
Acquiring a home can be the biggest transaction most may ever encounter. Whether it's where you raise your family, an additional vacation property or a rental fixer upper, the purchase of real property is a detailed transaction that requires multiple people working in concert to make it all happen.
Most people are familiar with the parties taking part in the transaction. The real estate agent is the most known person in the transaction. Next, the lender provides the financial capital required to finance the transaction. And ensuring all aspects of the transaction are completed and that a clear title transfers from the seller to the purchaser is the title company.
So, what party makes sure the value of the property is in line with the purchase price? In comes the appraiser. We provide an unbiased opinion of what a buyer could expect to pay — or a seller receive — for a parcel of real estate, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Home Value Source, Inc. will ensure, you as an interested party, are informed.
The inspection is where an appraisal begins
Our first responsibility at Home Value Source, Inc. is to inspect the property to determine its true status. We must physically view aspects of the property, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they truly exist and are in the condition a typical person would expect them to be. The inspection often includes a sketch of the property, ensuring the square footage is accurate and conveying the layout of the property. Most importantly, the appraiser looks for any obvious amenities - or defects - that would have an impact on the value of the house.
Back at the office, we use two or three approaches to determining the value of real property: a sales comparison, a replacement cost calculation, and an income approach when rental properties are prevalent.
This is where we analyze information on local construction costs, the cost of labor and other factors to derive how much it would cost to replace the property being appraised. This estimate commonly sets the maximum on what a property would sell for. The cost approach is also the least used predictor of value.
Analyzing Comparable Sales
Appraisers are intimately familiar with the neighborhoods in which they work. They thoroughly understand the value of particular features to the people of that area. Then, the appraiser researches recent sales in the area and finds properties which are 'comparable' to the home in question. Using knowledge of the value of certain items such as fireplaces, room layout, appliance upgrades, additional bathrooms or bedrooms, or quality of construction, 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 could sell for can only be determined once all differences between the comps and the subject have been evaluated. At Home Value Source, Inc., we are experts when it comes to knowing the value of particular items in Indian Trail and Union County neighborhoods. The sales comparison approach to value is usually awarded the most weight when an appraisal is for a real estate exchange.
Valuation Using the Income Approach
In the case of income producing properties - rental houses for example - the appraiser may use an additional way of valuing a house. In this scenario, the amount of income the real estate generates is factored in with other rents in the area for comparable properties to determine the current value.
The Bottom Line
Analyzing the data from all approaches, the appraiser is then ready to stipulate an estimated market value for the subject property. The estimate of value on the appraisal report is not always the final sales price even though it is likely the best indication of what a property is worth. Depending on the specific circumstances of the buyer or seller, their level of urgency or a buyer's desire for that exact property, the closing price of a home can always be driven up or down.Regardless, the appraised value is typically used as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. At the end of the day, an appraiser from Home Value Source, Inc. will guarantee you attain the most fair and balanced property value, so you can make the most informed real estate decisions.