What Are the Components of an Appraisal?
Purchasing real estate can be the most serious financial decision most people might ever encounter. Whether it's a primary residence, a seasonal vacation home or an investment, purchasing real property is an involved financial transaction that requires multiple people working in concert to pull it all off.
Practically all the people participating are quite familiar. The most recognizable person in the exchange is the real estate agent. Then, the bank provides the money required to bankroll the exchange. And ensuring all areas of the sale are completed and that the title is clear to pass from the seller to the buyer is the title company.
So, what party makes sure the real estate is worth the purchase price? This is where you meet the appraiser. We provide an unbiased opinion 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, certified, professional appraiser from Elite Appraisal Services will ensure, you as an interested party, are informed.
The inspection is where an appraisal starts
To determine the true status of the property, it's our responsibility to first conduct a thorough inspection. We must actually see features, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they truly are there and are in the shape a reasonable buyer would expect them to be. The inspection often includes a sketch of the house, ensuring the square footage is accurate and illustrating the layout of the property. Most importantly, the appraiser looks for any obvious features - or defects - that would have an impact on the value of the property.
Once the site has been inspected, we use two or three approaches to determining the value of real property: a sales comparison, a replacement cost calculation, and an income approach when rental properties are prevalent.
Here, the appraiser analyzes information on local construction 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 method.
Analyzing Comparable Sales
Appraisers get to know the neighborhoods in which they appraise. They thoroughly understand the value of specific features to the homeowners of that area. Then, the appraiser researches recent sales in the vicinity and finds properties which are 'comparable' to the real estate in question. By assigning a dollar value to certain items such as upgraded appliances, extra bathrooms, additional living area, quality of construction, lot size, we add or subtract from each comparable's sales price so that they more accurately portray the features of subject property.
An opinion of what the subject could sell for can only be determined once all differences between the comps and the subject have been evaluated. At Elite Appraisal Services, we are experts in knowing the worth of particular items in Pearland and Brazoria County neighborhoods. This approach to value is usually awarded the most importance when an appraisal is for a real estate sale.
Valuation Using the Income Approach
A third method of valuing real estate is sometimes used when an area has a reasonable number of renter occupied properties. In this situation, the amount of income the real estate produces is taken into consideration along with other rents in the area for comparable properties to give an indicator of the current value.
The Bottom Line
Combining information from all approaches, the appraiser is then ready to stipulate an estimated market value for the property in question. The estimate of value on the appraisal report is not always the final sales price even though it is likely the best indication of what a property is worth. Depending on the individual circumstances of the buyer or seller, their level of urgency or a buyer's desire for that exact property, the closing price of a home can always be driven 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 they could get back in the event they had to sell the property again. It all comes down to this, an appraiser from Elite Appraisal Services will help you discover the most fair and balanced property value, so you can make the most informed real estate decisions.