Real Property Appraisals: A Primer
A home purchase is the most important financial decision some of us might ever consider. It doesn't matter if where you raise your family, a second vacation home or one of many rentals, the purchase of real property is an involved financial transaction that requires multiple people working in concert to make it all happen.
Practically all the participants are quite familiar. The most recognizable face in the exchange is the real estate agent. Then, the bank provides the financial capital required to fund the deal. And ensuring all aspects of the exchange are completed and that the title is clear to pass from the seller to the buyer is the title company.
So, who makes sure the value of the property is consistent with the amount being paid? This is where the appraiser comes in. 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 licensed, certified, professional appraiser from A. M. Appraisals will ensure, you as an interested party, are informed.
The inspection is where an appraisal starts
To ascertain an accurate status of the property, it's our duty to first perform a thorough inspection. We must see aspects of the property hands on, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they truly are present and are in the shape a typical buyer 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, we identify any obvious features - or defects - that would affect the value of the house.
Once the site has been inspected, an appraiser uses two or three approaches to determining the value of real property: a sales comparison, a replacement cost calculation, and an income approach when rental properties are prevalent.
Here, we pull information on local construction costs, the cost of labor and other factors to figure out how much it would cost to construct a property nearly identical to the one being appraised. This value commonly sets the maximum on what a property would sell for. The cost approach is also the least used predictor of value.
Appraisers can tell you a lot about the neighborhoods in which they work. They innately understand the value of specific features to the residents of that area. Then, the appraiser looks up recent sales in the neighborhood and finds properties which are 'comparable' to the subject being appraised. Using knowledge of the value of certain items such as fireplaces, room layout, appliance upgrades, extra bathrooms or bedrooms, or quality of construction, we add or subtract from each comparable's sales price so that they are more accurately in line with the features of subject property.
A valid 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 West Columbia and Lexington, A. M. Appraisals is second to none. This approach to value is most often given the most consideration when an appraisal is for a home exchange.
Valuation Using the Income Approach
A third method of valuing real estate is sometimes employed when an area has a reasonable number of rental properties. In this case, the amount of income the property generates is factored in with income produced by comparable properties to determine the current value.
Coming Up With The Final Value
Combining information from all applicable approaches, the appraiser is then ready to state an estimated market value for the subject property. Note: While this amount is probably the best indication of what a property is worth, it may not be the price at which the property closes. There are always mitigating factors such as seller motivation, 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 the property is actually worth. At the end of the day, an appraiser from A. M. Appraisals will guarantee you attain the most fair and balanced property value, so you can make the most informed real estate decisions.
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