What Are the Components of an Appraisal?
Their home's purchase is the biggest financial decision some of us will ever encounter. It doesn't matter if where you raise your family, a second vacation home or a rental fixer upper, the purchase of real property is a complex transaction that requires multiple people working in concert to make it all happen.
Most of the parties involved are quite familiar. The real estate agent is the most known person in the exchange. Next, the bank provides the financial capital necessary to bankroll the exchange. And ensuring all details of the transaction are completed and that the title is clear to transfer to the buyer from the seller is the title company.
So, who makes sure the value of the property is in line with the amount being paid? In comes the appraiser. We provide an unbiased estimate 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 Anderson Appraisals will ensure, you as an interested party, are informed.
Appraisals start with the home inspection
To ascertain an accurate status of the property, it's our responsibility to first conduct a thorough inspection. We must physically view features, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they indeed are there and are in the condition a typical person would expect them to be. The inspection often includes a sketch of the property, ensuring the square footage is accurate and conveying the layout of the property. Most importantly, the appraiser looks for any obvious features - or defects - that would have an impact on the value of the house.
Next, after the inspection, 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.
Here, we gather information on local building costs, the cost of labor and other elements to derive how much it would cost to replace the property being appraised. This estimate often 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 appraise. They innately understand the value of particular features to the homeowners of that area. Then, the appraiser looks up recent transactions 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 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 portray the features of subject.
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 Anderson Appraisals, we are experts in knowing the value of particular items in Coeur D Alene and Kootenai County neighborhoods. This approach to value is commonly awarded the most importance 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 approach to value. In this scenario, the amount of revenue the property yields is factored in with income produced by nearby properties to determine the current value.
Arriving at a Value Conclusion
Combining information from all approaches, the appraiser is then ready to document an estimated market value for the subject property. The estimate of value at the bottom of the appraisal report is not always what's being paid for the property even though it is likely the best indication of what a property is worth. There 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. Regardless, the appraised value is typically employed as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. It all comes down to this, an appraiser from Anderson Appraisals will guarantee you discover the most accurate property value, so you can make wise real estate decisions.