Real Property Appraisals: A Primer
Buying a home can be the biggest transaction some of us may ever make. Whether it's where you raise your family, an additional vacation home or a rental fixer upper, purchasing real property is an involved transaction that requires multiple parties to see it through.
You're likely to be familiar with the parties having a role in the transaction. The most familiar entity in the transaction is the real estate agent. Then, the mortgage company provides the money needed to finance the exchange. And ensuring all areas of the transaction are completed and that a clear title passes from the seller to the purchaser is the title company.
So, what party is responsible for making sure the value of the property is in line with the purchase price? 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 Independent Valuation Services will ensure, you as an interested party, are informed.
Appraisals start with the home inspection
Our first task at Independent Valuation Services is to inspect the property to ascertain its true status. We must see features hands on, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they truly are present and are in the condition a reasonable person would expect them to be. To ensure the stated size of the property is accurate and document the layout of the home, 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 property.
Once the site has been inspected, we use two or three approaches to determining the value of real property: a sales comparison, a replacement cost calculation, and an income approach when rental properties are prevalent.
Here, we pull information on local building costs, the cost of labor and other elements to calculate how much it would cost to build a property nearly identical to the one being appraised. This value usually sets the upper limit on what a property would sell for. It's also the least used predictor of value.
Paired Sales Analysis
Appraisers can tell you a lot about the communities in which they work. They thoroughly understand the value of specific features to the homeowners of that area. Then, the appraiser researches recent sales in close proximity to the subject and finds properties which are 'comparable' to the real estate at hand. By assigning a dollar value to certain items such as fireplaces, room layout, appliance upgrades, extra bathrooms or bedrooms, or quality of construction, we adjust the comparable properties so that they are more accurately in line with the features of subject property.
After all differences have been accounted for, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At Independent Valuation Services, we are an authority in knowing the value of real estate features in Prior Lake and Scott County neighborhoods. This approach to value is typically given the most consideration when an appraisal is for a real estate sale.
Valuation Using the Income Approach
A third way of valuing a property is sometimes applied when an area has a measurable number of rental properties. In this situation, the amount of income the real estate generates is taken into consideration along with income produced by neighboring properties to derive the current value.
Coming Up With The Final Value
Examining the data from all approaches, the appraiser is then ready to stipulate an estimated market value for the property in question. The estimate of value at the bottom of the appraisal report is not necessarily the final sales price even though it is likely the best indication of what a property is worth. 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'. But the appraised value is typically employed as a guideline for lenders who don't want to loan a buyer more money than they could get back in case they had to put the property on the market again. It all comes down to this, an appraiser from Independent Valuation Services will guarantee you get the most accurate property value, so you can make profitable real estate decisions.