Real Estate Appraisals: A Primer
Their home's purchase is the most serious transaction many might ever consider. Whether it's a main residence, a seasonal vacation property or a rental fixer upper, purchasing real property is a detailed transaction that requires multiple people working in concert to pull it all off.
Most of the people participating are very familiar. The real estate agent is the most recognizable person in the transaction. Then, the bank provides the money required to bankroll the transaction. And the title company sees to it that all requirements of the sale are completed and that the title is clear to transfer from the seller to the purchaser.
So, what party is responsible for making sure the real estate is worth 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 property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from ACME Appraisal will ensure, you as an interested party, are informed.
The inspection is where an appraisal starts
To determine the true status of the property, it's our responsibility to first perform a thorough inspection. We must physically view aspects of the property, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they indeed are there and are in the shape a reasonable person would expect them to be. The inspection often includes a sketch of the floorplan, ensuring the square footage is accurate and conveying the layout of the property. Most importantly, we look for any obvious amenities - or defects - that would affect the value of the property.
Back at the office, an appraiser uses 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.
Here, we use information on local construction costs, labor rates and other elements to derive how much it would cost to construct a property similar to the one being appraised. This estimate often 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 get to know the communities in which they appraise. They thoroughly understand the value of particular features to the residents of that area. Then, the appraiser looks up recent sales in the area and finds properties which are 'comparable' to the property being appraised. Using knowledge of the value of certain items such as fireplaces, room layout, appliance upgrades, extra 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 ACME Appraisal, we are an authority when it comes to knowing the worth of particular items in Bluffton and Allen County neighborhoods. The sales comparison approach to value is commonly given the most importance when an appraisal is for a real estate sale.
Valuation Using the Income Approach
In the case of income producing properties - rental houses for example - the appraiser may use a third method of valuing a property. In this case, the amount of income the real estate produces is taken into consideration along with income produced by neighboring properties to determine the current value.
Arriving at a Value Conclusion
Combining information from all approaches, the appraiser is then ready to put down an estimated market value for the subject property. It is important to note that while the appraised value is probably the strongest indication of what a house is worth, it may not be the price at which the property closes. Depending on the individual 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.But the appraised value is typically employed 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 ACME Appraisal will help you get the most fair and balanced property value, so you can make profitable real estate decisions.