What Are the Components of an Appraisal?
Purchasing a home is the most serious investment most could ever consider. Whether it's a primary residence, a second vacation property or a rental fixer upper, the purchase of real property is an involved financial transaction that requires multiple people working in concert to make it all happen.
It's likely you are familiar with the parties taking part in the transaction. The real estate agent is the most familiar person in the transaction. Then, the mortgage company provides the money required to bankroll the exchange. And ensuring all areas of the transaction are completed and that the title is clear to transfer to the buyer from the seller is the title company.
So, who makes sure the value of the real estate is in line with 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 Kennedy Appraisals will ensure, you as an interested party, are informed.
Inspecting the subject property
To determine an accurate status of the property, it's our responsibility 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 really are present and are in the shape a reasonable buyer would expect them to be. The inspection often includes a sketch of the house, ensuring the square footage is correct and conveying the layout of the property. Most importantly, the appraiser looks for any obvious features - or defects - that would affect the value of the property.
Back at the office, 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.
Here, we pull information on local construction costs, the cost of labor and other elements to derive how much it would cost to build a property nearly identical to the one being appraised. This figure commonly sets the upper limit on what a property would sell for. It's also the least used method.
Appraisers can tell you a lot about the communities in which they work. They innately understand the value of certain features to the residents of that area. Then, the appraiser looks up 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 extra storage space, we adjust the comparable properties so that they are more accurately in line with the features of subject property.
An opinion 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 New Buffalo and Berrien, Kennedy Appraisals can't be beat. The sales comparison approach to value is usually given the most weight when an appraisal is for a home sale.
Valuation Using the Income Approach
A third method of valuing a property is sometimes employed when a neighborhood has a measurable number of rental properties. In this scenario, the amount of income the property yields is taken into consideration along with income produced by comparable properties to determine the current value.
The Bottom Line
Combining information from all applicable approaches, the appraiser is then ready to stipulate an estimated market value for the property in question. The estimate of value on the appraisal report is not always the final sales price even though it is likely the best indication of a property's valueIt's not uncommon for prices to be driven up or down by extenuating circumstances like the motivation or urgency of a seller or 'bidding wars'. But the appraised value is typically employed as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. The bottom line is, an appraiser from Kennedy Appraisals will help you attain the most fair and balanced property value, so you can make the most informed real estate decisions.