Real Property Appraisals: A Primer
A home purchase is the most serious transaction most of us will ever encounter. It doesn't matter if a primary residence, a seasonal vacation property or an investment, purchasing real property is a complex transaction that requires multiple parties to pull it all off.
Practically all the people involved are very familiar. The most recognizable entity in the transaction is the real estate agent. Then, the bank provides the financial capital needed to finance the exchange. And ensuring all requirements of the sale are completed and that a clear title transfers from the seller to the buyer is the title company.
So, who makes sure the value of the property is consistent with the purchase price? This is where the appraiser comes in. 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 Race Appraisal Services, LLC will ensure, you as an interested party, are informed.
The inspection is where an appraisal begins
To determine the true status of the property, it's our duty to first complete a thorough inspection. We must see features first hand, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they indeed are there and are in the condition a reasonable buyer would expect them to be. To make sure the stated square footage has not been misrepresented and describe the layout of the house, the inspection often requires creating a sketch of the floorplan. Most importantly, we look for any obvious amenities - 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 real property: paired sales analysis and, in the case of a rental property, an income approach.
Here, the appraiser uses information on local building costs, the cost of labor and other factors to ascertain how much it would cost to replace the property being appraised. This value often sets the maximum on what a property would sell for. The cost approach is also the least used predictor of value.
Paired Sales Analysis
Appraisers get to know the neighborhoods in which they appraise. They thoroughly understand the value of specific features to the residents of that area. Then, the appraiser looks up recent sales 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 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 match the features of subject property.
In the end, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At Race Appraisal Services, LLC, we are experts when it comes to knowing the value of particular items in East Longmeadow and Hampden County neighborhoods. This approach to value is usually given the most weight when an appraisal is for a real estate exchange.
Valuation Using the Income Approach
A third method of valuing approach to value is sometimes used when an area has a reasonable number of renter occupied properties. In this scenario, the amount of income the real estate generates is factored in with income produced by nearby properties to give an indicator of the current value.
The Bottom Line
Analyzing the data from all applicable approaches, the appraiser is then ready to state an estimated market value for the property in question. The estimate of value on the appraisal report is not necessarily the final sales price even though it is likely the best indication of a property's valueDepending 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.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. The bottom line is, an appraiser from Race Appraisal Services, LLC will guarantee you attain the most fair and balanced property value, so you can make the most informed real estate decisions.
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