What Is an Appraisal?
A home purchase can be the biggest investment some of us will ever consider. Whether it's a main residence, a seasonal vacation property or one of many rentals, purchasing real property is an involved financial transaction that requires multiple people working in concert to see it through.
Most of the participants are quite familiar. The real estate agent is the most familiar entity in the exchange. Then, the mortgage company provides the money required to bankroll the transaction. And ensuring all details of the sale are completed and that a clear title passes from the seller to the purchaser is the title company.
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 opinion of what a buyer could 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 Steven W Backer, Appraiser/Consultant will ensure, you as an interested party, are informed.
The inspection is where an appraisal begins
Our first duty at Steven W Backer, Appraiser/Consultant 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, and so on, to ensure they really are present and are in the condition a reasonable person would expect them to be. To ensure the stated square footage has not been misrepresented and convey the layout of the home, the inspection often requires creating a sketch of the floorplan. Most importantly, the appraiser looks for any obvious features - or defects - that would affect the value of the property.
Following the inspection, we use two or three approaches to determining the value of the property: a sales comparison, a replacement cost calculation, and an income approach when rental properties are prevalent.
This is where we pull information on local building costs, the cost of labor and other factors to determine how much it would cost to build a property comparable to the one being appraised. This value often sets the upper limit on what a property would sell for. The cost approach is also the least used predictor of value.
Analyzing Comparable Sales
Appraisers become very familiar with the subdivisions in which they appraise. They innately understand the value of specific features to the residents of that area. Then, the appraiser researches recent transactions in the vicinity and finds properties which are 'comparable' to the subject being appraised. By assigning a dollar value to certain items such as remodeled rooms, types of flooring, energy efficient items, patios and porches, or additional storage space, 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 might sell for can only be determined once all differences between the comps and the subject have been evaluated. When it comes to associating a value with features of homes in Somers and Flathead, Steven W Backer, Appraiser/Consultant is your local authority. The sales comparison approach to value is typically given the most importance when an appraisal is for a home purchase.
Valuation Using the Income Approach
A third way of valuing a property is sometimes used when a neighborhood has a reasonable number of renter occupied properties. In this scenario, the amount of revenue the property produces is factored in with income produced by comparable properties to derive the current value.
The Bottom Line
Examining 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 at the bottom of the appraisal report is not necessarily what's being paid for the property even though it is likely the best indication of what a property is worth. There are always mitigating factors such as seller motivation, urgency or 'bidding wars' that may adjust an offer or listing price up or down. Regardless, the appraised value is often employed as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. Here's what it all boils down to, an appraiser from Steven W Backer, Appraiser/Consultant will help you attain the most fair and balanced property value, so you can make profitable real estate decisions.