Real Estate Appraisals: A Primer
Purchasing a home is the most significant investment many people may ever consider. Whether it's a main residence, a seasonal vacation home or a rental fixer upper, purchasing real property is a complex financial transaction that requires multiple people working in concert to pull it all off.
Practically all the participants are quite familiar. The real estate agent is the most familiar person in the transaction. Then, the lender provides the money needed to bankroll the exchange. And ensuring all details of the exchange are completed and that a clear title passes to the buyer from the seller is the title company.
So, what party is responsible for making sure the value of the real estate 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 parcel of real estate, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Appraisal Works will ensure, you as an interested party, are informed.
The inspection is where an appraisal begins
Our first responsibility at Appraisal Works is to inspect the property to ascertain its true status. We must actually see aspects of the property, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they truly are present and are in the condition a reasonable person would expect them to be. To make sure the stated square footage has not been misrepresented and document the layout of the house, the inspection often includes creating a sketch of the floorplan. Most importantly, the appraiser looks for any obvious features - or defects - that would have an impact on the value of the house.
Next, after the inspection, we use two or three approaches to determining the value of the property: paired sales analysis and, in the case of a rental property, an income approach.
This is where the appraiser pulls information on local building costs, the cost of labor and other elements to ascertain how much it would cost to build a property nearly identical to the one being appraised. This value often sets the maximum on what a property would sell for. It's also the least used method.
Paired Sales Analysis
Appraisers become very familiar with the neighborhoods in which they work. They thoroughly 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 real estate at hand. Using knowledge of the value of certain items such as upgraded appliances, extra bathrooms, additional living area, quality of construction, lot size, we add or subtract from each comparable's sales price so that they are more accurately in line with the features of subject property.
A valid estimate of what the subject could sell for can only be determined once all differences between the comps and the subject have been evaluated. At Appraisal Works, we are experts when it comes to knowing the value of particular items in Eleva and Trempealeau County neighborhoods. This approach to value is usually given the most weight when an appraisal is for a home sale.
Valuation Using the Income Approach
In the case of income producing properties - rental houses for example - the appraiser may use an additional approach to value. In this scenario, the amount of revenue the property yields is taken into consideration along with income produced by nearby properties to derive the current value.
Putting It All Together
Combining information from all applicable approaches, the appraiser is then ready to put down an estimated market value for the subject property. It is important to note that while the appraised value is probably the most accurate indication of what a house is worth, it may not be the final sales price. Depending 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.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 the event they had to put the property on the market again. The bottom line is, an appraiser from Appraisal Works will guarantee you discover the most accurate property value, so you can make wise real estate decisions.