What Are the Components of an Appraisal?
Purchasing a home is the largest transaction some will ever consider. Whether it's a main residence, an additional vacation property or one of many rentals, purchasing 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 having a role in the transaction. The most recognizable person in the exchange is the real estate agent. Next, the mortgage company provides the money required to fund the exchange. And ensuring all details of the sale are completed and that the title is clear to transfer to the buyer from the seller is the title company.
So, what party is responsible for making sure the real estate is worth 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 Race Appraisal Services, LLC will ensure, you as an interested party, are informed.
The inspection is where an appraisal starts
Our first responsibility at Race Appraisal Services, LLC is to inspect the property to ascertain its true status. We must see aspects of the property hands on, 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. The inspection often includes a sketch of the house, ensuring the square footage is correct and conveying the layout of the property. Most importantly, we look for any obvious amenities - or defects - that would affect the value of the house.
Back at the office, 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 factors to ascertain how much it would cost to replace the property being appraised. This value often sets the maximum on what a property would sell for. The cost approach is also the least used predictor of value.
Appraisers become very familiar with the subdivisions in which they appraise. They thoroughly understand the value of certain features to the residents of that area. Then, the appraiser looks up recent sales in close proximity to the subject and finds properties which are 'comparable' to the property 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 are more accurately in line with 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 Race Appraisal Services, LLC, we are an authority when it comes to knowing the worth of particular items in East Longmeadow and Hampden County neighborhoods. The sales comparison approach to value is typically awarded the most weight when an appraisal is for a real estate sale.
Valuation Using the Income Approach
In the case of income producing properties - rental houses for example - the appraiser may use a third way of valuing real estate. In this situation, the amount of revenue the real estate yields is taken into consideration along with other rents in the area for comparable properties to derive the current value.
The Bottom Line
Analyzing the data from all approaches, the appraiser is then ready to put down an estimated market value for the property at hand. Note: While the appraised value is probably the most reliable indication of what a property is worth, it may not be the final sales price. 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 often 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 Race Appraisal Services, LLC will help you discover the most accurate property value, so you can make the most informed real estate decisions.
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