Real Property Appraisals: A Primer
Purchasing real estate is the biggest investment many may ever encounter. It doesn’t matter if it’s a main residence, an additional vacation property or an investment, purchasing real property is an involved financial transaction that requires multiple parties to make it all happen.
Most of the parties participating are very familiar with the process. The real estate agent is the most familiar entity in the transaction. Then, the bank provides the money needed to finance the deal. The title company sees to it that all aspects of the transaction are completed and that a clear title passes from the seller to the buyer.
So what party makes sure the value of the real estate is consistent with the purchase price? In comes 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.
Inspecting the Subject Property
To ascertain an accurate status of the property, it’s our duty to first perform a thorough inspection. We must physically view aspects of the property, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they truly are there and are in the condition a typical buyer would expect them to be. To ensure the stated size of the property is accurate and document the layout of the property, the inspection often requires creating a sketch of the floor plan. Most importantly, the appraiser looks for any obvious features – or defects – that would have an impact on the value of the property.
Next, after the inspection, an appraiser employs two or three approaches when determining the value of real property: sales comparison and, in the case of a rental property, an income approach.
Here, the appraiser analyzes information on local construction costs, labor rates and other elements to calculate how much it would cost to construct a property nearly identical to the one being appraised. The cost approach is typically developed and more accurate on newer homes.
Appraisers can tell you a lot about the subdivisions in which they appraise. We thoroughly understand the value of particular features to the homeowners of that area. Then, the appraiser researches 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 remodeled rooms, types of flooring, energy efficient items, patios and porches, or additional storage space, we adjust the comparable properties so that they more accurately match the features of subject property.
- For example, if the the comparable has a two car garage and the subject does not, the appraiser may make a negative adjustment to the comparable’s sale price.
However, if the subject property has an extra half-bathroom and the comparable does not, the appraiser might add an amount to the comparable property.
The Bottom Line (Purchasing or Refinance)
Combining information from all approaches, the appraiser is then ready to document an estimated market value for the subject property. The estimate of value on the appraisal report is not necessarily the final sales price even though it is likely the best indication of what a property could sell for in an open market. 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 typically employed as a guideline for lenders who don’t want to loan a buyer more money than the property would likely sell for in an open marketplace. Here’s what it all boils down to: An appraisal from Turner Appraisal Co will help you attain the most fair and balanced property value, so you can make wise real estate decisions.