What Are the Parts of an Appraisal?
Acquiring a house is the most important financial decision most of us may ever make. Whether it's where you raise your family, an additional vacation property or one of many rentals, purchasing real property is a detailed financial transaction that requires multiple parties to see it through.
Practically all the participants are quite familiar. The most familiar person in the exchange is the real estate agent. Then, the bank provides the money needed to fund the exchange. And ensuring all requirements of the transaction are completed and that a clear title passes to the buyer from the seller is the title company.
So, who makes sure the property is worth the purchase price? This is where the appraiser comes in. We provide an unbiased opinion 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 Gordon Appraisal Company, Inc. will ensure, you as an interested party, are informed.
Appraisals start with the home inspection
Our first responsibility at Gordon Appraisal Company, Inc. is to inspect the property to ascertain its true status. We must physically see features, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they really exist and are in the shape a reasonable buyer would expect them to be. To make sure the stated square footage is accurate and convey the layout of the property, the inspection often requires creating a sketch of the floorplan. Most importantly, we look for any obvious features - 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 the appraiser analyzes information on local construction costs, labor rates and other factors to ascertain how much it would cost to build a property nearly identical to the one being appraised. This value often sets the maximum on what a property would sell for. It's also the least used method.
Paired Sales Analysis
Appraisers get to know the communities in which they work. They thoroughly understand the value of specific 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 real estate being appraised. By assigning a dollar value to certain items such as square footage, extra bathrooms, hardwood floors, fireplaces or view lots (just to name a few), we add or subtract from each comparable's sales price so that they more accurately portray the features of subject.
Once all necessary adjustments have been made, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At Gordon Appraisal Company, Inc., we are experts in knowing the value of real estate features in Lincoln and Providence County neighborhoods. The sales comparison approach to value is usually awarded the most consideration when an appraisal is for a real estate purchase.
Valuation Using the Income Approach
A third way of valuing real estate is sometimes employed when a neighborhood has a reasonable number of rental properties. In this situation, the amount of revenue the property generates is factored in with income produced by neighboring properties to derive the current value.
Putting It All Together
Examining the data from all applicable approaches, the appraiser is then ready to document an estimated market value for the subject property. 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 what a property is worth. Depending on the individual circumstances 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.Regardless, the appraised value is often used as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. Here's what it all boils down to, an appraiser from Gordon Appraisal Company, Inc. will guarantee you discover the most fair and balanced property value, so you can make profitable real estate decisions.