What Are the Components of an Appraisal?
Acquiring a home is the largest transaction many could ever encounter. It doesn't matter if a main residence, an additional vacation home or a rental fixer upper, the purchase of real property is a complex transaction that requires multiple parties to see it through.
Practically all the parties involved are very familiar. The real estate agent is the most familiar face in the exchange. Next, the mortgage company provides the financial capital required to bankroll the transaction. And ensuring all details of the sale are completed and that the title is clear to pass to the buyer from the seller is the title company.
So, who's responsible for making sure the value of the property is in line with the amount being paid? In comes the appraiser. We provide an unbiased opinion of what a buyer might expect to pay — or a seller receive — for a property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Edwards Appraisal Service, Inc. will ensure, you as an interested party, are informed.
Appraisals start with the property inspection
To ascertain an accurate status of the property, it's our duty to first complete 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 indeed are there and are in the shape a typical person would expect them to be. To ensure the stated size of the property has not been misrepresented and convey the layout of the property, the inspection often requires creating a sketch of the floorplan. Most importantly, the appraiser looks for any obvious features - or defects - that would affect the value of the property.
Once the site has been inspected, we use two or three approaches to determining the value of the property: a sales comparison, a replacement cost calculation, and an income approach when rental properties are prevalent.
Here, we gather information on local construction costs, the cost of labor and other factors to calculate 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 method.
Paired Sales Analysis
Appraisers get to know the neighborhoods in which they appraise. They innately understand the value of certain features to the people of that area. Then, the appraiser researches recent transactions in close proximity to the subject and finds properties which are 'comparable' to the home at hand. By assigning a dollar value to certain items such as upgraded appliances, additional bathrooms, additional living area, quality of construction, lot size, we add or subtract from each comparable's sales price so that they more accurately match the features of subject property.
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 Edwards Appraisal Service, Inc., we are an authority in knowing the value of particular items in Goldsboro and Wayne 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 - the appraiser may use an additional way of valuing a house. In this case, the amount of income the property generates is factored in with other rents in the area for comparable properties to determine the current value.
The Bottom Line
Examining the data from all applicable approaches, the appraiser is then ready to document an estimated market value for the property at hand. The estimate of value on the appraisal report is not always what's being paid for the property even though it is likely the best indication of a property's valueDepending on the specific situations 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 often used as a guideline for lenders who don't want to loan a buyer more money than they could recover in the event they had to put the property on the market again. At the end of the day, an appraiser from Edwards Appraisal Service, Inc. will help you attain the most fair and balanced property value, so you can make the most informed real estate decisions.