What Are the Components of an Appraisal?
Getting a home can be the biggest transaction most of us may ever encounter. It doesn't matter if where you raise your family, a second vacation home or an investment, purchasing real property is a complex financial transaction that requires multiple people working in concert to make it all happen.
The majority of the parties involved are quite familiar. The real estate agent is the most familiar person in the transaction. Then, the bank provides the financial capital necessary to fund the deal. The title company sees to it that all requirements of the transaction are completed and that the title is clear to pass from the seller to the purchaser.
So, what party is responsible for making sure the value of the property is consistent with the purchase price? This is where the appraiser comes in. 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.
Inspecting the subject property
Our first responsibility at 1st Appraisal Source is to inspect the property to determine its true status. We must actually view aspects of the property, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they really exist and are in the condition a typical person would expect them to be. To ensure the stated square footage is accurate and convey the layout of the house, the inspection often requires creating a sketch of the floorplan. Most importantly, we identify any obvious features - 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: sales comparison and, in the case of a rental property, an income approach.
This is where the appraiser gathers information on local construction costs, the cost of labor and other elements to figure out how much it would cost to build a property similar to the one being appraised. This estimate often sets the upper limit on what a property would sell for. The cost approach is also the least used method.
Paired Sales Analysis
Appraisers can tell you a lot about the communities in which they work. They innately 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 home in question. Using knowledge of the value of certain items such as square footage, extra bathrooms, hardwood floors, fireplaces or view lots (just to name a few), we add or subtract from each comparable's sales price so that they are more accurately in line with the features of subject property.
Once all necessary adjustments have been made, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At 1st Appraisal Source, we are an authority in knowing the value of particular items in Paramus and Bergen County neighborhoods. The sales comparison approach to value is usually given the most weight when an appraisal is for a real estate exchange.
Valuation Using the Income Approach
A third method of valuing a house is sometimes applied when a neighborhood has a reasonable number of renter occupied properties. In this scenario, the amount of income the real estate yields is factored in with other rents in the area for comparable properties to determine the current value.
Examining the data from all applicable approaches, the appraiser is then ready to stipulate an estimated market value for the subject property. Note: While this amount is probably the most reliable indication of what a house is worth, it may not be the final sales price. It's not uncommon for prices to be driven up or down by extenuating circumstances like the motivation or urgency of a seller or 'bidding wars'. 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 recover in the event they had to sell the property again. Here's what it all boils down to, an appraiser from 1st Appraisal Source will help you get the most accurate property value, so you can make wise real estate decisions.