What Are the Parts of an Appraisal?
Buying a home is the biggest investment many of us will ever consider. Whether it's where you raise your family, an additional vacation property or an investment, purchasing real property is an involved financial transaction that requires multiple parties to see it through.
Most people are familiar with the parties having a role in the transaction. The most known face in the exchange is the real estate agent. Then, the mortgage company provides the money required to finance the deal. And ensuring all aspects of the sale are completed and that a clear title passes to the buyer from the seller is the title company.
So, what party makes sure the property is worth the amount being paid? This is where you meet the appraiser. We provide an unbiased opinion 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 Filson's Real Estate Appraisal Services, Inc. will ensure, you as an interested party, are informed.
Appraisals start with the home inspection
To determine the true status of the property, it's our duty to first conduct a thorough inspection. We must actually view aspects of the property, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they truly are there and are in the condition a reasonable person would expect them to be. To make sure the stated size of the property has not been misrepresented and describe the layout of the house, the inspection often requires 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 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.
This is where the appraiser pulls information on local building costs, labor rates and other elements to determine how much it would cost to construct a property nearly identical to the one being appraised. This estimate usually sets the upper limit on what a property would sell for. It's also the least used method.
Paired Sales Analysis
Appraisers become very familiar with the subdivisions in which they work. They thoroughly understand the value of specific features to the people of that area. Then, the appraiser looks up recent transactions in the area and finds properties which are 'comparable' to the home being appraised. By assigning a dollar value to certain items such as fireplaces, room layout, appliance upgrades, additional bathrooms or bedrooms, or quality of construction, we add or subtract from each comparable's sales price so that they more accurately match the features of subject property.
In the end, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At Filson's Real Estate Appraisal Services, Inc., we are experts in knowing the value of real estate features in Roswell and Fulton County neighborhoods. This approach to value is most often given the most consideration when an appraisal is for a home exchange.
Valuation Using the Income Approach
In the case of income producing properties - rental houses for example - we may use an additional method of valuing a house. In this case, the amount of income the property yields is taken into consideration along with income produced by similar properties to derive the current value.
The Bottom Line
Combining information from all approaches, the appraiser is then ready to document an estimated market value for the property in question. It is important to note that while the appraised value is probably the most accurate indication of what a house is worth, it probably will not be the price at which the property closes. There are always mitigating factors such as seller motivation, urgency or 'bidding wars' that may adjust an offer or listing price 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 get back in the event they had to sell the property again. The bottom line is, an appraiser from Filson's Real Estate Appraisal Services, Inc. will help you attain the most accurate property value, so you can make profitable real estate decisions.