How Does It Work?
Decoding the Appraisal Process
If you are new to the appraisal process, you may not be familiar with the steps involved. One's home purchase can be the most significant investment many will ever encounter. Whether it's where you raise your family, an additional vacation home or one of many rentals, purchasing real property is an involved transaction that requires multiple people working in concert to pull it all off.
The majority of the participants are quite familiar. The most familiar face in the transaction is the real estate agent. Next, the bank provides the money necessary to bankroll the deal. The title company makes sure that all requirements of the exchange are completed and that a clear title passes to the buyer from the seller.
So what party is responsible for making sure the property is consistent with the amount being paid? This is where you meet the appraiser. We provide an unbiased opinion of what a buyer could expect to pay - or a seller receive - for a property, where both the buyer and seller are informed parties.
Inspecting the subject property
Our first task at Certified Appraisal Services is to inspect the property to determine its true status. We must see aspects of the property firsthand, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they indeed are there and are in the condition a reasonable person would expect them to be. To make sure the stated square footage has not been misrepresented, the inspection often includes creating a sketch of the floor plan. Most importantly, we identify any obvious features - or defects - that would have an impact on the value of the property.
Where Does the Value Come From?
Back at the office, we use several approaches when determining the value of real property: replacement cost, sales comparisons, and in the case of a rental property, an income approach.
This is where we use information on local building costs, the cost of labor and other elements to calculate how much it would cost to replace the property being appraised. This value often sets the upper limit on what a property would sell for. It's also the least used method.
Appraisers become very familiar with the neighborhoods in which they appraise. We innately understand the value of particular features to the people of that area. Then, the appraiser researches recent sales in the vicinity and finds properties which are 'comparable' to the subject in question. By assigning a dollar value to certain items such as upgraded appliances, additional bathrooms, an additional living area, quality of construction, lot size, we adjust the comparable properties so that they are more accurately in line with the features of subject property.
- If, for example, the comparable property has an irrigation system and the subject doesn't, the appraiser may deduct the value of an irrigation system from the sales price of the comparable home.
- If the subject property has an extra half-bathroom and the comparable does not, the appraiser might add an amount to the comparable property.
In the case of income producing properties - rental houses for example - we may use a third way of valuing a house. In this case, the amount of income the property generates is taken into consideration along with income produced by nearby properties to derive the current value.
Putting It All Together
Examining the data from all approaches, the appraiser is then ready to estimate market value for the subject property. The estimate on the appraisal report is not necessarily the final sales price even though it is likely the best indication of what a property could sell for in an open market; there are always mitigating factors such as the seller's desire to get out of the property, urgency or 'bidding wars' that may adjust the final price 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 they could get back in case they had to sell the property again. An appraiser from Certified Appraisal Services will guarantee you get the most accurate property value so you can make the most informed real estate decisions.