What Goes Into an Appraisal?
Buying real estate is the biggest transaction most of us could ever consider. Whether it's a main residence, an additional vacation property or an investment, the purchase of real property is an involved transaction that requires multiple parties to make it all happen.
Practically all the parties involved are quite familiar. The most known face in the exchange is the real estate agent. Then, the lender provides the financial capital needed to bankroll the exchange. The title company makes sure that all details of the exchange are completed and that the title is clear to transfer to the buyer from the seller.
So, what party is responsible for making sure the value of the real estate is in line with 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 Central Appraisal Services will ensure, you as an interested party, are informed.
Appraisals start with the inspection
To ascertain the true status of the property, it's our responsibility to first conduct a thorough inspection. We must actually view features, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they really are present and are in the condition a typical buyer would expect them to be. The inspection often includes a sketch of the floorplan, ensuring the square footage is proper and illustrating the layout of the property. Most importantly, we identify any obvious features - or defects - that would affect the value of the house.
Once the site has been inspected, we use two or three approaches to determining the value of the property: a paired sales analysis, a replacement cost calculation, and an income approach when rental properties are prevalent.
Here, the appraiser uses information on local construction costs, labor rates and other factors to ascertain how much it would cost to construct a property similar to the one being appraised. This value often 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 are intimately familiar with the subdivisions in which they work. They innately understand the value of particular features to the homeowners 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 additional storage space, we adjust the comparable properties so that they are more accurately in line with 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. At Central Appraisal Services, we are experts in knowing the value of particular items in Philadelphia and Philadelphia County neighborhoods. This approach to value is typically awarded the most importance when an appraisal is for a home sale.
Valuation Using the Income Approach
A third method of valuing a house is sometimes applied when an area has a reasonable number of rental properties. In this situation, the amount of income the property produces is taken into consideration along with other rents in the area for comparable properties to derive the current value.
Putting It All Together
Analyzing the data from all applicable approaches, the appraiser is then ready to stipulate an estimated market value for the subject property. The estimate of value at the bottom of the appraisal report is not necessarily the final sales price even though it is likely the best indication of a property's valueThere 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 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 Central Appraisal Services will help you get the most accurate property value, so you can make wise real estate decisions.
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