Understanding Appraisals

A home purchase can be the most significant investment most of us will ever consider. Whether it's a main residence, a seasonal vacation home or one of many rentals, purchasing real property is a detailed transaction that requires multiple parties to make it all happen.

Most people are familiar with the parties taking part in the transaction. The most recognizable entity in the exchange is the real estate agent. Next, the lender provides the financial capital required to bankroll the deal. And the title company sees to it that all aspects of the sale are completed and that a clear title passes from the seller to the purchaser.

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So, who's responsible for making sure the value of the property is in line with the purchase price? This is where you meet the appraiser. We provide an unbiased estimate 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 1st Appraisal Source will ensure, you as an interested party, are informed.

Appraisals begin with the home inspection

To ascertain the true status of the property, it's our duty to first conduct a thorough inspection. We must see aspects of the property hands on, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they indeed are there and are in the shape a typical person would expect them to be. To make sure the stated size of the property is accurate and describe the layout of the home, the inspection often requires creating a sketch of the floorplan. Most importantly, we look for any obvious amenities - or defects - that would affect the value of the property.

Following the inspection, an appraiser uses 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.

Replacement Cost

Here, we analyze information on local construction costs, labor rates and other elements to calculate how much it would cost to construct a property comparable to the one being appraised. This estimate often sets the maximum on what a property would sell for. The cost approach is also the least used predictor of value.

Paired Sales Analysis

Appraisers get to know the neighborhoods in which they work. They thoroughly understand the value of certain features to the people of that area. Then, the appraiser looks up recent sales in close proximity to the subject and finds properties which are 'comparable' to the home in question. By assigning a dollar value to certain items such as fireplaces, room layout, appliance upgrades, additional bathrooms or bedrooms, or quality of construction, we adjust the comparable properties so that they are more accurately in line with the features of subject property.

  • Say, for example, the comparable has a fireplace and the subject does not, the appraiser may deduct the value of a fireplace from the sales price of the comparable home.
  • However, 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.

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. When it comes to knowing the true value of features of homes in Paramus and Bergen, 1st Appraisal Source can't be beat. This approach to value is usually given the most importance when an appraisal is for a real estate exchange.

Valuation Using the Income Approach

A third way of valuing a house is sometimes used when an area has a measurable number of rental properties. In this situation, the amount of income the real estate yields is factored in with income produced by comparable properties to give an indicator of 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 a property's valueThere are always mitigating factors such as seller motivation, urgency or 'bidding wars' that may adjust the final price up or down. But the appraised value is often employed as a guideline for lenders who don't want to loan a buyer more money than they could recover in the event they had to sell the property again. It all comes down to this, an appraiser from 1st Appraisal Source will guarantee you discover the most fair and balanced property value, so you can make profitable real estate decisions.