What Are the Parts of an Appraisal?
Their home's purchase can be the most important transaction some people could ever consider. It doesn't matter if a main residence, a second vacation home or an investment, purchasing real property is a detailed financial transaction that requires multiple parties to see it through.
Practically all the participants are very familiar. The real estate agent is the most known person in the transaction. Then, the bank provides the money required to bankroll the deal. And ensuring all aspects of the transaction are completed and that a clear title transfers to the buyer from the seller is the title company.
So, who's responsible for making sure the real estate is worth the amount being paid? This is where the appraiser comes in. We provide an unbiased estimate of what a buyer could expect to pay — or a seller receive — for a property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Graham Appraisal will ensure, you as an interested party, are informed.
The inspection is where an appraisal starts
To determine an accurate status of the property, it's our responsibility to first conduct a thorough inspection. We must see features first hand, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they indeed exist and are in the shape a reasonable buyer would expect them to be. The inspection often includes a sketch of the property, ensuring the square footage is accurate and illustrating the layout of the property. Most importantly, the appraiser identifies any obvious features - or defects - that would have an impact on the value of the property.
Next, after the inspection, we use two or three approaches to determining the value of real property: a paired sales analysis, a replacement cost calculation, and an income approach when rental properties are prevalent.
Here, we analyze information on local construction costs, labor rates and other factors 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 are intimately familiar with the neighborhoods in which they work. They innately understand the value of specific features to the residents of that area. Then, the appraiser researches recent transactions in close proximity to the subject and finds properties which are 'comparable' to the home being appraised. Using knowledge of the value of certain items such as square footage, additional bathrooms, hardwood floors, fireplaces or view lots (just to name a few), we add or subtract from each comparable's sales price so that they more accurately portray the features of subject.
Once all necessary adjustments have been made, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At Graham Appraisal, we are experts in knowing the value of real estate features in Glasgow and Barren County neighborhoods. This approach to value is typically awarded the most consideration when an appraisal is for a real estate purchase.
Valuation Using the Income Approach
In the case of income producing properties - rental houses for example - the appraiser may use an additional approach to value. In this case, the amount of revenue the real estate generates is factored in with other rents in the area for comparable properties to derive the current value.
Arriving at a Value Conclusion
Combining information from all applicable approaches, the appraiser is then ready to document an estimated market value for the subject property. It is important to note that while this amount is probably the strongest indication of what a house is worth, it probably will not be the final sales price. It'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 they could recover in case they had to put the property on the market again. The bottom line is, an appraiser from Graham Appraisal will help you attain the most fair and balanced property value, so you can make the most informed real estate decisions.