What Are the Parts of an Appraisal?
Purchasing a home is the most important financial decision some people might ever consider. Whether it's a primary residence, a seasonal vacation home or an investment, purchasing real property is a complex financial transaction that requires multiple parties to pull it all off.
You're probably familiar with the parties taking part in the transaction. The most known entity in the transaction is the real estate agent. Then, the mortgage company provides the financial capital required to finance the exchange. And ensuring all requirements of the transaction are completed and that a clear title passes from the seller to the purchaser is the title company.
So, who's responsible for making sure the value of the property is consistent with the amount being paid? This is where the appraiser comes in. I provide an unbiased estimate 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, professional appraiser will ensure, you as an interested party, are informed.
Inspecting the subject property
To determine an accurate status of the property, it's our duty to first perform a thorough inspection. We must see features firsthand, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they indeed are present and are in the shape a typical person would expect them to be. To make sure the stated square footage is accurate and describe the layout of the home, the inspection often entails creating a sketch of the floorplan. Most importantly, the appraiser looks for any obvious amenities - or defects - that would have an impact on the value of the property.
Following 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, we use information on local building costs, labor rates and other factors to derive how much it would cost to replace the property being appraised in Holtsville or other surrounding towns. This estimate commonly 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 get to know the subdivisions in which they work. We are centrally located on Long Island. We thoroughly understand the value of certain features to the residents of that area. Then, the appraiser looks up recent transactions in close proximity to the subject and finds properties which are 'comparable' to the property being appraised. Using knowledge of the value of 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 more accurately match the features of subject property.
After all differences have been accounted for, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. We are an authority when it comes to knowing the worth of real estate features in Suffolk & Nassau County neighborhoods. This approach to value is typically awarded the most importance when an appraisal is for a real estate sale.
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 case, the amount of revenue the real estate produces is factored in with income produced by neighboring properties to give an indicator of the current value.
Arriving at a Value Conclusion
Combining information from all applicable approaches, the appraiser is then ready to stipulate an estimated market value for the property at hand. The estimate of value at the bottom of the appraisal report is not always 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 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. Here's what it all boils down to, an appraiser will help you attain the most fair and balanced property value, so you can make the most informed real estate decisions.
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