What Are the Components of an Appraisal?
A home purchase can be the most important transaction most people might ever make. It doesn't matter if a main residence, a second vacation home or an investment, purchasing real property is a complex transaction that requires multiple parties to see it through.
It's likely you are familiar with the parties taking part in the transaction. The most familiar person in the exchange is the real estate agent. Then, the mortgage company provides the financial capital necessary to finance the exchange. The title company sees to it that all areas of the exchange are completed and that a clear title transfers from the seller to the purchaser.
So, what party makes sure the value of the property is in line with the purchase price? This is where the appraiser comes in. We provide an unbiased opinion of what a buyer could expect to pay — or a seller receive — for a property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from APPRAISAL EXPERTS, LLC will ensure, you as an interested party, are informed.
Inspecting the subject property
To ascertain the true status of the property, it's our duty to first conduct a thorough inspection. We must see features first hand, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they indeed are there and are in the condition a reasonable buyer would expect them to be. The inspection often includes a sketch of the floorplan, ensuring the square footage is accurate and conveying the layout of the property. Most importantly, we look for any obvious amenities - or defects - that would have an impact on the value of the property.
Once the site has been inspected, 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.
Here, we use information on local construction costs, labor rates and other factors to figure out how much it would cost to construct a property nearly identical to the one being appraised. This value commonly sets the maximum on what a property would sell for. It's also the least used method.
Appraisers get to know the communities in which they appraise. They innately understand the value of particular features to the people of that area. Then, the appraiser researches recent sales in close proximity to the subject and finds properties which are 'comparable' to the subject being appraised. Using knowledge of the value of certain items such as fireplaces, room layout, appliance upgrades, additional bathrooms or bedrooms, or quality of construction, we add or subtract from each comparable's sales price so that they more accurately portray the features of subject property.
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 APPRAISAL EXPERTS, LLC, we are experts in knowing the value of real estate features in Saint Louis and Saint Louis County neighborhoods. The sales comparison approach to value is most often awarded the most weight when an appraisal is for a home 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 a house. In this scenario, the amount of revenue the property yields is factored in with income produced by neighboring properties to determine the current value.
Coming Up With The Final Value
Examining the data from all applicable approaches, the appraiser is then ready to stipulate an estimated market value for the property at hand. Note: While the appraised value is probably the most reliable indication of what a house is worth, it probably will not be the price at which the property closes. Prices can always be driven up or down by extenuating circumstances like the motivation or urgency of a seller or 'bidding wars'. Regardless, the appraised value is typically used 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. At the end of the day, an appraiser from APPRAISAL EXPERTS, LLC will help you attain the most fair and balanced property value, so you can make the most informed real estate decisions.