Understanding the Appraisal ProcessBuying a house can be the most important financial decision some of us may ever consider. It doesn't matter if it's where you raise your family, an additional vacation property or an investment, purchasing real property is a complex financial transaction that requires multiple people working in concert to make it all happen.
Most of the parties participating are quite familiar. The most familiar face in the exchange is the real estate agent. Next, the bank provides the money necessary to bankroll the deal. Ensuring all requirements of the exchange are completed and that the title is clear to transfer to the buyer from the seller is the title company.
So what party makes sure the value of the real estate is consistent with the purchase price? In comes the appraiser. We 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 professional Minnesota licensed appraiser from Accurate Real Estate Appraisals will ensure you as an interested party are informed.
The inspection is where an appraisal startsTo ascertain the true status of the property, it's our duty to first complete a thorough inspection. We must see features hands on, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they truly exist and are in the condition a typical buyer would expect them to be. The inspection often includes a sketch of the house, ensuring the square footage is proper and conveying the layout of the property. Most importantly, we identify any obvious amenities - or defects - that would affect the value of the house.
Next, after the inspection, we use two or three approaches when determining the value of the property: sales comparison and, in the case of a rental property, an income approach.
Replacement CostThis is where the appraiser uses information on local building costs, labor rates and other elements to derive how much it would cost to replace the property being appraised. This estimate often sets the upper limit on what a property would sell for. It's also the least used predictor of value.
Analyzing Comparable SalesAppraisers get to know the communities in which they work. We innately understand the value of specific features to the people of that area. Then, the appraiser researches recent transactions in the area and finds properties which are 'comparable' to the home 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 more accurately portray the features of subject.
Valuation Using the Income ApproachA third way of valuing a house is sometimes employed when an area has a measurable number of rental properties. In this case, the amount of income the property yields is taken into consideration along with other rents in the area for comparable properties to determine the current value.
Coming Up With the Final ValueExamining the data from all approaches, the appraiser is then ready to document an estimated market value for the property at hand. Note: While the appraised value is probably the strongest indication of what a property would sell for in an open market, 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'. Regardless, the appraised value is often employed as a guideline for lenders who don't want to loan a buyer more money than they could get back in the event they had to put the property on the market again. It all comes down to this: An appraiser from Accurate Real Estate Appraisals will guarantee you attain the most accurate property value, so you can make profitable real estate decisions.