What Are the Parts of an Appraisal?
Acquiring a house can be the largest investment some of us will ever make. Whether it's where you raise your family, a seasonal vacation home or an investment, the purchase of real property is a detailed transaction that requires multiple people working in concert to make it all happen.
It's likely you are familiar with the parties taking part in the transaction. The real estate agent is the most known face in the transaction. Then, the lender provides the financial capital needed to bankroll the deal. And the title company ensures that all areas of the exchange are completed and that a clear title passes to the buyer from the seller.
So, who's responsible for making sure the value of the real estate is consistent with the purchase price? In comes the appraiser. 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 American Real Estate Appraisal will ensure, you as an interested party, are informed.
The inspection is where an appraisal begins
Our first task at American Real Estate Appraisal is to inspect the property to ascertain its true status. We must see aspects of the property 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 condition a typical person would expect them to be. The inspection often includes a sketch of the floorplan, 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 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: paired sales analysis and, in the case of a rental property, an income approach.
Here, the appraiser pulls information on local construction costs, the cost of labor and other factors to figure out how much it would cost to replace the property being appraised. This value often sets the upper limit on what a property would sell for. It's also the least used method.
Analyzing Comparable Sales
Appraisers become very familiar with the subdivisions in which they appraise. They thoroughly understand the value of particular features to the people of that area. Then, the appraiser looks up recent transactions in close proximity to the subject and finds properties which are 'comparable' to the real estate in question. Using knowledge of the value of certain items such as square footage, additional 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.
After all differences have been accounted for, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At American Real Estate Appraisal, we are an authority in knowing the value of real estate features in Hinsdale and Dupage County neighborhoods. This approach to value is typically given the most weight when an appraisal is for a home exchange.
Valuation Using the Income Approach
A third method of valuing approach to value is sometimes applied when a neighborhood has a reasonable number of rental properties. In this case, the amount of revenue the property yields is taken into consideration along with income produced by nearby properties to derive the current value.
Arriving at a Value Conclusion
Combining information from all approaches, the appraiser is then ready to state an estimated market value for the property in question. Note: While the appraised value is probably the most reliable indication of what a house is worth, it probably will not be the price at which the property closes. 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.But 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 American Real Estate Appraisal will help you discover the most fair and balanced property value, so you can make profitable real estate decisions.