What are the parts of an appraisal?
Buying a house is the largest investment some of us may ever encounter. It doesn’t matter if it’s a primary residence, a seasonal vacation home or one of many rentals, the purchase of real property is a complex transaction that requires multiple people working in concert to complete a successful transaction.
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It’s likely you are familiar with the parties taking part in the transaction. The most recognizable entity in the transaction is the real estate agent. Next, the mortgage company provides the money required to fund the loan. Ensuring all details of the exchange are completed and that the title is clear to transfer from the seller to the buyer is the title company.
So who’s responsible for making sure the real estate value is consistent with the amount being paid? This is where you meet the appraiser. The appraiser provides an unbiased opinion of what a buyer could expect to pay – or a seller receive – for the property, where both buyer and seller are informed parties. A professional appraiser from Affinity Valuation Group, LLC will ensure you as an interested party are informed.
The property viewing is where an appraisal starts
To determine the true status of the property, it’s our responsibility to first complete a thorough property inventory. We must see features first hand, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they indeed are there and are in the condition a typical person would expect them to be. The property viewing often includes a sketch documenting the floor plan, ensuring the square footage is correct and conveying the layout of the property. Most importantly, we identify any obvious amenities – or defects – that would affect the value of the property.
Following the property viewing, we consider two or three approaches when determining the value of the property: sale comparison analysis; depreciated replacement cost and, in the case of a income producing property, an income capitalization approach.
Replacement Cost
In this analysis, the appraiser uses information on local building costs, labor rates and other factors to determine how much it would cost to construct a property comparable to the one being appraised. This estimate commonly sets the maximum on what a property would sell for. The cost approach is most appropriate when the improvements are newer and/or have been well maintained.
Analyzing Comparable Sales
Our appraisers are intimately familiar with the communities in which they appraise. We are constantly analyzing and measuring the value of certain features to the people of that area. Then, the appraiser researches recent sales in the neighborhood and finds properties which are ‘comparable’ to the property being appraised. By assigning a dollar value to certain items such as fireplaces, room layout, built in appliances, extra bathrooms or bedrooms, or quality of construction, we adjust the comparable properties so that they are more accurately in line with the features of subject property.
- If, for example, the comparable has a basement and the subject does not, the appraiser may subtract the value of a basement from the sales price of the comparable home.
- But, in the case where the subject has something such as an extra half bath that a comparable doesn’t have, the appraiser might add the value of that bath to the comparable property.
When it comes to valuing features of homes in Southeastern Michigan, Affinity Valuation Group, LLC can’t be beat. We use sophisticated analysis tools to measure the market reaction to the different features and amenities that properties present. This approach to value is usually given the most weight when an appraisal is for a real estate purchase as it usually best predicts the attitudes of the typical buyer and seller.
Valuation Using the Income Approach
A third way of valuing a property is sometimes used when a neighborhood has a measurable number of renter occupied properties. In this scenario, the amount of revenue the property generates is taken into consideration along with income produced by nearby properties to determine the current value.
The Bottom Line
Combining information from all approaches, the appraiser is then ready to document an estimated market value for the subject property. The estimate of value on the appraisal report is not necessarily what’s being paid for the property even though it is a good indication of a property’s value. Prices can always be driven up or down by extenuating circumstances like the motivation or urgency of a seller or ‘bidding wars’. Regardless, the appraised value is typically used 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 Affinity Valuation Group, LLC will guarantee you get an unbiased, accurate property value, so you can make the most informed real estate decisions.