Real Property Appraisals: A Primer
Purchasing a home is the largest investment many of us will ever consider. Whether it's where you raise your family, a seasonal vacation home or an investment, 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 entity in the exchange. Next, the bank provides the money necessary to fund the transaction. And ensuring all requirements of the sale are completed and that a clear title passes from the seller to the buyer is the title company.
So, who makes sure the real estate is worth the amount being paid? 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 Gordon Appraisal Company, Inc. will ensure, you as an interested party, are informed.
The inspection is where an appraisal starts
To ascertain an accurate status of the property, it's our duty to first complete a thorough inspection. We must actually view aspects of the property, 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. To ensure the stated size of the property has not been misrepresented and convey the layout of the property, the inspection often requires creating a sketch of the floorplan. Most importantly, we identify any obvious amenities - 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 the property: paired sales analysis and, in the case of a rental property, an income approach.
This is where we gather information on local building costs, the cost of labor and other factors to ascertain how much it would cost to replace the property being appraised. This value commonly sets the upper limit on what a property would sell for. It's also the least used predictor of value.
Appraisers become very familiar with the subdivisions in which they work. They innately understand the value of specific features to the homeowners 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 remodeled rooms, types of flooring, energy efficient items, patios and porches, or additional storage space, we add or subtract from each comparable's sales price so that they more accurately match the features of subject property.
An opinion of what the subject could sell for can only be determined once all differences between the comps and the subject have been evaluated. At Gordon Appraisal Company, Inc., we are an authority in knowing the value of particular items in Lincoln and Providence County neighborhoods. This approach to value is typically given the most importance when an appraisal is for a real estate sale.
Valuation Using the Income Approach
A third method of valuing real estate is sometimes used when a neighborhood has a measurable number of rental properties. In this situation, the amount of revenue the real estate generates is taken into consideration along with other rents in the area for comparable properties to determine the current value.
Putting It All Together
Examining the data from all approaches, the appraiser is then ready to put down an estimated market value for the property at hand. The estimate of value on the appraisal report is not always what's being paid for the property even though it is likely the best indication of a property's valuePrices 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 often employed as a guideline for lenders who don't want to loan a buyer more money than they could get back in the event they had to sell the property again. The bottom line is, an appraiser from Gordon Appraisal Company, Inc. will guarantee you attain the most fair and balanced property value, so you can make the most informed real estate decisions.