Real Property Appraisals: A Primer
A home purchase is the most important transaction some people will ever encounter. It doesn't matter if a primary residence, a second vacation property or one of many rentals, the purchase of real property is a detailed financial transaction that requires multiple parties to see it through.
The majority of the parties involved are very familiar. The most familiar entity in the transaction is the real estate agent. Next, the bank provides the money required to finance the deal. And the title company ensures that all details of the transaction are completed and that a clear title transfers to the buyer from the seller.
So, what party makes sure the value of the real estate is in line 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 property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Apex Appraisal Associates will ensure, you as an interested party, are informed.
Appraisals begin with the home inspection
To ascertain an accurate status of the property, it's our duty to first conduct a thorough inspection. We must physically see features, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they really are there and are in the shape a reasonable person would expect them to be. The inspection often includes a sketch of the floorplan, ensuring the square footage is accurate and illustrating the layout of the property. Most importantly, the appraiser identifies any obvious features - 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 real property: a paired sales analysis, a replacement cost calculation, and an income approach when rental properties are prevalent.
Here, the appraiser uses information on local building costs, labor rates and other elements to derive how much it would cost to build a property comparable to the one being appraised. This figure usually 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 are intimately familiar with the subdivisions in which they work. They innately understand the value of particular features to the homeowners 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 in question. Using knowledge of the value of certain items such as fireplaces, room layout, appliance upgrades, additional bathrooms or bedrooms, or quality of construction, we add or subtract from each comparable's sales price so that they more accurately portray the features of subject.
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 Apex Appraisal Associates, we are experts when it comes to knowing the value of particular items in Lancaster County neighborhoods. The sales comparison approach to value is usually awarded the most importance when an appraisal is for a home sale.
Valuation Using the Income Approach
In the case of income producing properties - rental houses for example - we may use a third approach to value. In this scenario, the amount of income the real estate yields is taken into consideration along with other rents in the area for comparable properties to determine the current value.
Arriving at a Value Conclusion
Analyzing the data from all applicable approaches, the appraiser is then ready to put down an estimated market value for the property in question. The estimate of value on the appraisal report is not always what's being paid for the property even though it is likely the best indication of a property's value, depending on the specific 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. It all comes down to this, an appraiser from Apex Appraisal Associates will help you discover the most fair and balanced property value, so you can make wise real estate decisions.