Buying a house can be the largest investment most of us might ever encounter. It doesn't matter if it's a primary residence, an additional vacation home or one of many rentals, purchasing real property is an involved transaction that requires multiple parties to see it through.
You're probably familiar with the parties taking part in the t
Buying a house can be the largest investment most of us might ever encounter. It doesn't matter if it's a primary residence, an additional vacation home or one of many rentals, purchasing real property is an involved transaction that requires multiple parties to see it through.
You're probably familiar with the parties taking part in the transaction. The most known face in the exchange is the real estate agent. Then, the lender provides the money required to bankroll the deal. Ensuring all details of the exchange are completed and that a clear title transfers from the seller to the purchaser is the title company. So who makes sure the real estate is consistent with the purchase price? This is where the appraiser comes in. We provide an unbiased estimate of what a buyer could expect to pay - or a seller receive - for
a parcel of real estate, where both buyer and
seller are informed parties.
To ascertain the true status of the property, it's our responsibility to first complete a thorough inspection. We must physically see aspects of the property, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they indeed are present and are in the condition a reasonable buyer would expect them to be. To make sure the stated size of the property has not been misrepresented and convey the layout of the house, the inspection often includes creating a sketch of the floor plan. Most importantly, we look for any obvious amenities - or defects - that would affect the value of the house. Next, after the inspection, we use two or three approaches when determining the value of the property: paired sales analysis and, in the case of a rental property, an income approach.
Sales Comparison
Appraisers get to know the subdivisions in which they appraise. We thoroughly understand the value of certain features to the residents of that area. Then, the appraiser researches recent transactions in close proximity to the subject and finds properties which are 'comparable' to the real estate at hand. Using knowledge
Sales Comparison
Appraisers get to know the subdivisions in which they appraise. We thoroughly understand the value of certain features to the residents of that area. Then, the appraiser researches recent transactions in close proximity to the subject and finds properties which are 'comparable' to the real estate at hand. Using knowledge of the value of certain items such as remodeled rooms, types of flooring, energy efficient items, patios and porches, or extra storage space, we add or subtract from each comparable's sales price so that they more accurately match the features of subject property. If, for example, the comparable property has an extra half bath that the subject doesn't, the appraiser may subtract the value of that half bath from the sales price of the comparable home. However, if the subject property has an extra half-bathroom and the comparable does not, the appraiser might add a certain amount to the comparable property. A true estimate of what the subject might sell for can only be determined once all differences between the comps and the subject have been evaluated. This approach to value is usually awarded the most weight when an appraisal is for a home purchase.
Cost Approach
This is where the appraiser pulls information on local construction 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 predictor of value.
Income Approach
A third way of valuing a house is sometimes employed when a neighborhood has a reasonable number of rental properties. In this situation, the amount of revenue the property generates is taken into consideration along with income produced by similar properties to derive the current value.
Examining the data from all applicable approaches, the appraiser is then ready to put down an estimated market value for the subject property. Note: While the appraised value is probably the best indication of what a house is worth, it probably will not be the final sales price. There are always mitigating factors such as the seller's des
Examining the data from all applicable approaches, the appraiser is then ready to put down an estimated market value for the subject property. Note: While the appraised value is probably the best indication of what a house is worth, it probably will not be the final sales price. 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. But the appraised value is often used 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 put the property on the market again
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