What Are the Components of an Appraisal?
A home purchase can be the most significant transaction most of us might ever encounter. It doesn't matter if a primary residence, an additional vacation home or one of many rentals, purchasing real property is a complex transaction that requires multiple people working in concert to see it through.
It's likely you are familiar with the parties having a role in the transaction. The most recognizable entity in the exchange is the real estate agent. Then, the mortgage company provides the financial capital required to bankroll the exchange. And ensuring all details of the sale are completed and that a clear title passes to the buyer from the seller is the title company.
To learn more about appraising, click here to see a short video or call us today to talk about your specific property.
So, who's responsible for making sure the value of the property is consistent with the purchase price? 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 Accent on Appraisal will ensure, you as an interested party, are informed.
The inspection is where an appraisal starts
Our first responsibility at Accent on Appraisal is to inspect the property to determine its true status. We must actually see features, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they really are present and are in the shape a reasonable person would expect them to be. To ensure the stated size of the property has not been misrepresented and describe the layout of the property, the inspection often requires creating a sketch of the floorplan. Most importantly, we look for any obvious features - or defects - that would affect the value of the property.
Next, after the inspection, an appraiser uses two or three approaches to determining the value of real property: a paired sales analysis, a replacement cost calculation, and an income approach when rental properties are prevalent.
This is where the appraiser uses information on local construction costs, labor rates and other elements to ascertain how much it would cost to replace the property being appraised. This value commonly sets the upper limit 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 neighborhoods in which they work. They innately understand the value of specific features to the homeowners 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 adjust the comparable properties so that they are more accurately in line with the features of subject.
For example, if the comparable has an irrigation system and the subject doesn't, the appraiser may deduct the value of an irrigation system from the sales price of the comparable home.
But, in the case where the subject has something such as an extra half bath that a comparable doesn't have, the appraiser might add the value of that bath to the comparable property.
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 Accent on Appraisal, we are an authority in knowing the value of real estate features in Farmington and San Juan County neighborhoods. The sales comparison approach to value is commonly awarded the most consideration when an appraisal is for a real estate sale.
Valuation Using the Income Approach
A third method of valuing a house is sometimes used when an area has a measurable number of renter occupied properties. In this case, the amount of income the real estate produces is factored in with other rents in the area for comparable properties to determine the current value.
Coming Up With The Final Value
Combining information from all applicable approaches, the appraiser is then ready to state an estimated market value for the subject property. The estimate of value on the appraisal report is not necessarily what's being paid for the property even though it is likely the best indication of what a property is worth. 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.Regardless, the appraised value is often used as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. Here's what it all boils down to, an appraiser from Accent on Appraisal will guarantee you attain the most accurate property value, so you can make profitable real estate decisions.