Decoding the Appraisal ProcessPurchasing real estate can be the most serious investment some of us will ever encounter. It doesn't matter if it's a primary residence, a second vacation property or one of many rentals, purchasing real property is a complex transaction that requires multiple parties to see it through.
Most people are familiar with the parties taking part in the transaction. The most familiar entity in the transaction is the real estate agent. Then, the bank provides the money necessary to fund the exchange. Ensuring all requirements of the sale are completed and that the title is clear to transfer from the seller to the buyer is the title company.
So who's responsible for making sure the value of the real estate is consistent with the amount being paid? This is where you meet the appraiser. We provide an unbiased opinion of what a buyer might expect to pay - or a seller receive - for a property, where both buyer and seller are informed parties. A professional Alabama licensed appraiser from Holliday Prescott Appraisals will ensure you as an interested party are informed.
Inspecting the subject propertyOur first duty at Holliday Prescott Appraisals is to inspect the property to determine its true status. We must see features hands on, such as the number of bedrooms and bathrooms, the location, living areas, etc., to ensure they truly are there and are in the shape a typical buyer would expect them to be. The inspection often includes a sketch of the property, ensuring the square footage is proper and conveying the layout of the property. Most importantly, we look for any obvious amenities - or defects - that would affect the value of the property.
Following the inspection, we use two or three approaches when determining the value of real property: sales comparison and, in the case of a rental property, an income approach.
Replacement CostHere, we pull information on local construction costs, the cost of labor and other factors to determine how much it would cost to replace the property being appraised. This figure often sets the upper limit on what a property would sell for. It's also the least used predictor of value.
Sales ComparisonAppraisers get to know the neighborhoods in which they work. We thoroughly understand the value of particular features to the residents of that area. Then, the appraiser researches recent transactions in the vicinity and finds properties which are 'comparable' to the real estate being appraised. By assigning a dollar value to certain items such as upgraded appliances, extra bathrooms, an additional living area, quality of construction, lot size, we adjust the comparable properties so that they more accurately portray the features of subject property.
Valuation Using the Income ApproachIn the case of income producing properties - rental houses for example - we may use a third approach to value. In this situation, the amount of income the real estate generates is taken into consideration along with income produced by neighboring properties to give an indicator of the current value.
The Bottom LineCombining information from all approaches, the appraiser is then ready to stipulate an estimated market value for the property at hand. 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 market value Depending on the individual situations 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 typically used as a guideline for lenders who don't want to loan a buyer more money than the property would likely sell for in an open marketplace. At the end of the day: An appraiser from Holliday Prescott Appraisals will help you discover the most fair and balanced property value, so you can make profitable real estate decisions.