What Goes Into an Appraisal?
Acquiring a home can be the biggest transaction some people might ever encounter. It doesn't matter if a main residence, a second vacation property or a rental fixer upper, the purchase of real property is a complex transaction that requires multiple parties to pull it all off.
Most of the people involved are quite familiar. The most recognizable entity in the exchange is the real estate agent. Then, the lender provides the money necessary to finance the exchange. And the title company makes sure that all areas of the sale are completed and that a clear title transfers from the seller to the purchaser.
So, what party is responsible for making sure the real estate is worth 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 Certified Residential Inc will ensure, you as an interested party, are informed.
Inspecting the subject property
To determine the true status of the property, it's our responsibility to first perform a thorough inspection. We must see features first hand, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they truly are present and are in the shape 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 identify any obvious amenities - or defects - that would affect the value of the house.
Once the site has been inspected, we use two or three approaches to determining the value of the property: sales comparison and, in the case of a rental property, an income approach.
This is where the appraiser uses information on local building costs, labor rates and other factors to determine how much it would cost to construct a property comparable to the one being appraised. This figure commonly sets the maximum on what a property would sell for. The cost approach is also the least used method.
Appraisers can tell you a lot about the communities in which they work. They innately understand the value of specific features to the homeowners of that area. Then, the appraiser researches recent sales in the vicinity and finds properties which are 'comparable' to the home being appraised. Using knowledge of the value of certain items such as upgraded appliances, additional bathrooms, additional living area, quality of construction, lot size, we adjust the comparable properties so that they more accurately match the features of subject.
A true estimate of what the subject might sell for can only be determined once all differences between the comps and the subject have been evaluated. At Certified Residential Inc, we are experts in knowing the worth of real estate features in Lancaster and Fairfield County neighborhoods. The sales comparison approach to value is most often awarded the most importance when an appraisal is for a real estate exchange.
Valuation Using the Income Approach
A third method of valuing a house is sometimes employed when a neighborhood has a measurable number of rental properties. In this situation, the amount of income the property produces is taken into consideration along with income produced by neighboring properties to give an indicator of 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. Note: While the appraised value is probably the strongest indication of what a house is worth, it may not be the final sales price. There 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 they could get back in case they had to sell the property again. It all comes down to this, an appraiser from Certified Residential Inc will help you get the most fair and balanced property value, so you can make wise real estate decisions.