What Is an Appraisal?
A home purchase can be the largest financial decision most of us will ever encounter. It doesn't matter if where you raise your family, a second vacation home or an investment, purchasing real property is a detailed financial transaction that requires multiple parties to pull it all off.
The majority of the parties involved are quite familiar. The real estate agent is the most familiar person in the exchange. Next, the mortgage company provides the financial capital required to bankroll the deal. And ensuring all requirements of the sale are completed and that a clear title transfers to the buyer from the seller is the title company.
So, who makes sure the value of the real estate is consistent with the amount being paid? This is where the appraiser comes in. We provide an unbiased estimate 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 Reliable Appraisals Inc. will ensure, you as an interested party, are informed.
Appraisals start with the property inspection
Our first task at Reliable Appraisals Inc. is to inspect the property to ascertain its true status. We must physically see features, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they really exist and are in the condition a typical buyer would expect them to be. The inspection often includes a sketch of the property, ensuring the square footage is accurate and illustrating the layout of the property. Most importantly, the appraiser identifies any obvious amenities - or defects - that would affect the value of the property.
Following the inspection, 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.
Here, the appraiser analyzes information on local construction costs, labor rates and other elements to ascertain how much it would cost to build a property comparable to the one being appraised. This value usually sets the upper limit on what a property would sell for. It's also the least used predictor of value.
Analyzing Comparable Sales
Appraisers become very familiar with the communities in which they appraise. They innately understand the value of certain features to the residents of that area. Then, the appraiser researches recent sales in the vicinity and finds properties which are 'comparable' to the real estate at hand. Using knowledge of the value of certain items such as square footage, extra 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 more accurately match 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 Reliable Appraisals Inc., we are experts when it comes to knowing the worth of particular items in Berea and Madison County neighborhoods. This approach to value is typically awarded the most importance 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 a third method of valuing real estate. In this scenario, the amount of revenue the property yields is taken into consideration along with income produced by similar properties to determine the current value.
Examining the data from all approaches, the appraiser is then ready to document an estimated market value for the subject property. The estimate of value at the bottom of the appraisal report is not necessarily what's being paid for the property even though it is likely the best indication of a property's valueThere are always mitigating factors such as seller motivation, urgency or 'bidding wars' that may adjust the final price up or down. Regardless, the appraised value is often employed as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. It all comes down to this, an appraiser from Reliable Appraisals Inc. will guarantee you get the most accurate property value, so you can make the most informed real estate decisions.