Home Appraisals: A Primer
Their home's purchase can be the most significant investment many of us may ever consider. It doesn't matter if where you raise your family, an additional vacation home or one of many rentals, purchasing real property is a complex transaction that requires multiple parties to see it through.
Most people are familiar with the parties taking part in the transaction. The real estate agent is the most familiar face in the exchange. Then, the mortgage company provides the financial capital necessary to finance the exchange. And ensuring all areas of the transaction are completed and that a clear title passes to the buyer from the seller is the title company.
So, what party makes sure the real estate is worth the purchase price? In comes the appraiser. We provide an unbiased estimate 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 Independent Valuation Services will ensure, you as an interested party, are informed.
Appraisals start with the inspection
Our first duty at Independent Valuation Services is to inspect the property to determine its true status. We must physically see features, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they indeed are present and are in the condition a typical buyer would expect them to be. The inspection often includes a sketch of the property, ensuring the square footage is correct and conveying the layout of the property. Most importantly, the appraiser looks for any obvious amenities - or defects - that would have an impact on the value of the property.
Following the inspection, an appraiser uses 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.
This is where we pull information on local building costs, the cost of labor and other factors to determine how much it would cost to construct a property comparable to the one being appraised. This estimate commonly sets the upper limit on what a property would sell for. The cost approach is also the least used predictor of value.
Analyzing Comparable Sales
Appraisers become very familiar with the neighborhoods in which they work. They thoroughly understand the value of certain features to the residents of that area. Then, the appraiser looks up recent transactions in close proximity to the subject and finds properties which are 'comparable' to the subject 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 adjust the comparable properties so that they more accurately portray the features of subject.
An opinion of what the subject might sell for can only be determined once all differences between the comps and the subject have been evaluated. When it comes to associating a value with features of homes in Prior Lake and Scott, Independent Valuation Services is your local authority. This approach to value is typically awarded the most weight when an appraisal is for a real estate 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 situation, the amount of income the property yields is taken into consideration along with other rents in the area for comparable properties to determine the current value.
Combining information from all applicable approaches, the appraiser is then ready to put down an estimated market value for the property at hand. The estimate of value at the bottom of the appraisal report is not necessarily what's being paid for the property even though it is likely the best indication of a property's valueDepending on the individual situations of the buyer or seller, their level of urgency or a buyer's desire for that exact property, the closing price of a home can always be driven up or down.But 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 Independent Valuation Services will help you attain the most fair and balanced property value, so you can make profitable real estate decisions.