What Goes Into an Appraisal?
A home purchase can be the biggest investment some of us might ever consider. It doesn't matter if a main residence, a seasonal vacation property or one of many rentals, the purchase of real property is a complex transaction that requires multiple people working in concert to make it all happen.
Practically all the parties involved are quite familiar. The most recognizable person in the exchange is the real estate agent. Next, the lender provides the financial capital needed to finance the exchange. And ensuring all aspects 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 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 Loving Appraisals will ensure, you as an interested party, are informed.
Appraisals begin with the home inspection
To determine the true status of the property, it's our responsibility to first conduct a thorough inspection. We must see features hands on, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they truly are there and are in the condition a reasonable person would expect them to be. The inspection often includes a sketch of the property, ensuring the square footage is correct and conveying the layout of the property. Most importantly, we identify any obvious amenities - or defects - that would have an impact on the value of the house.
After the inspection, 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 build a property comparable to the one being appraised. This value usually sets the maximum on what a property would sell for. It's also the least used predictor of value.
Analyzing Comparable Sales
Appraisers become very familiar with the neighborhoods in which they appraise. They thoroughly understand the value of particular 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 subject in question. 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 are more accurately in line with the features of subject.
A true estimate of what the subject could sell for can only be determined once all differences between the comps and the subject have been evaluated. When it comes to putting a value on features of homes in Winchester and Frederick, Loving Appraisals can't be beat. The sales comparison approach to value is usually awarded the most consideration when an appraisal is for a home exchange.
Valuation Using the Income Approach
In the case of income producing properties - rental houses for example - the Appraiser may use a third method of valuing real estate. In this situation, the amount of income the property yields is taken into consideration along with income produced by comparable properties to derive the current value.
Putting It All Together
Analyzing the data from all applicable approaches, the Appraiser is then ready to document an estimated market value for the property in question. The estimate of value on the appraisal report is not necessarily what's being paid for the property even though it is likely the best indication of a property's value. There are always mitigating factors such as seller motivation, urgency or 'bidding wars' that may adjust an offer or listing price up or down. But the