Real Estate Appraisals: A Primer
Purchasing real estate can be the most serious financial decision some of us could ever encounter. Whether it's where you raise your family, a seasonal vacation property or one of many rentals, purchasing real property is a detailed transaction that requires multiple people working in concert to see it through.
Most of the parties participating are very familiar. The most known face in the exchange is the real estate agent. Next, the mortgage company provides the money needed to finance the deal. The title company ensures that all requirements of the exchange are completed and that the title is clear to pass to the buyer from the seller.
So, what party is responsible for making sure the value of the property is consistent with the purchase price? In comes the appraiser. We provide an unbiased opinion 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 Anderson Appraisal, LLC will ensure, you as an interested party, are informed.
Appraisals start with the home inspection
To ascertain an accurate status of the property, it's our duty to first complete a thorough inspection. We must see aspects of the property first hand, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they really exist 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 house, the inspection often includes creating a sketch of the floorplan. Most importantly, the appraiser identifies 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 the property: paired sales analysis and, in the case of a rental property, an income approach.
Here, we gather information on local building costs, the cost of labor and other factors to figure out how much it would cost to construct a property comparable to the one being appraised. This figure often sets the upper limit on what a property would sell for. It's also the least used method.
Appraisers get to know the neighborhoods in which they work. They innately understand the value of certain features to the residents of that area. Then, the appraiser researches recent sales in close proximity to the subject and finds properties which are 'comparable' to the real estate in question. Using knowledge of the value of 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 more accurately match 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. At Anderson Appraisal, LLC, we are experts in knowing the worth of particular items in Amarillo and Randall County neighborhoods. The sales comparison approach to value is commonly given the most consideration when an appraisal is for a real estate purchase.
Valuation Using the Income Approach
A third method of valuing approach to value is sometimes applied when an area has a measurable number of renter occupied properties. In this case, the amount of income the real estate produces is taken into consideration along with income produced by similar 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. Note: While the appraised value is probably the most accurate indication of what a property is worth, it probably will not be the price at which the property closes. Prices can always 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. At the end of the day, an appraiser from Anderson Appraisal, LLC will guarantee you discover the most fair and balanced property value, so you can make the most informed real estate decisions.