What Goes Into an Appraisal?
Acquiring a home can be the biggest financial decision some will ever consider. Whether it's where you raise your family, a seasonal vacation home or one of many rentals, purchasing real property is a detailed 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 person in the exchange is the real estate agent. Then, the bank provides the money needed to finance the exchange. And the title company makes sure that all areas of the sale are completed and that the title is clear to pass to the buyer from the seller.
So, who makes sure the real estate is worth the purchase price? This is where you meet 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 1st Appraisal Source will ensure, you as an interested party, are informed.
The inspection is where an appraisal begins
To determine the true status of the property, it's our responsibility to first complete a thorough inspection. We must physically view features, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they truly are present and are in the condition 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 home, the inspection often entails creating a sketch of the floorplan. Most importantly, the appraiser looks for any obvious amenities - or defects - that would affect the value of the house.
Next, after the inspection, an appraiser uses two or three approaches to determining the value of the property: a paired sales analysis, a replacement cost calculation, and an income approach when rental properties are prevalent.
Here, we use information on local construction costs, the cost of labor and other elements to figure out how much it would cost to replace the property being appraised. This value commonly sets the maximum on what a property would sell for. The cost approach is also the least used method.
Appraisers can tell you a lot about the communities in which they appraise. They innately understand the value of certain features to the homeowners of that area. Then, the appraiser looks up recent transactions in the vicinity and finds properties which are 'comparable' to the real estate in question. Using knowledge of the value of 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 more accurately match the features of subject property.
A true 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 1st Appraisal Source, we are experts when it comes to knowing the value of particular items in Paramus and Bergen County neighborhoods. The sales comparison approach to value is commonly awarded the most consideration when an appraisal is for a real estate purchase.
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 case, the amount of income the property generates is factored in with income produced by neighboring properties to give an indicator of the current value.
Combining information from all approaches, the appraiser is then ready to stipulate an estimated market value for the subject property. The estimate of value on the appraisal report is not always the final sales price even though it is likely the best indication of a property's valueThere are always mitigating factors such as the seller's desire to get out of the property, urgency or 'bidding wars' that may adjust the final 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 the property is actually worth. Here's what it all boils down to, an appraiser from 1st Appraisal Source will help you discover the most accurate property value, so you can make profitable real estate decisions.