Real Estate Appraisals: A Primer
Their home's purchase can be the most significant financial decision many people might ever consider. Whether it's a primary residence, an additional vacation home or an investment, the purchase of real property is an involved financial transaction that requires multiple parties to see it through.
Most people are familiar with the parties taking part in the transaction. The real estate agent is the most familiar person in the exchange. Next, the mortgage company provides the money necessary to fund the deal. The title company ensures that all requirements of the exchange are completed and that the title is clear to pass from the seller to the buyer.
So, what party is responsible for making sure the value of the real estate is consistent with the purchase price? In comes the appraiser. We provide an unbiased opinion of what a buyer could 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 Alliance Appraisal, Inc. will ensure, you as an interested party, are informed.
The inspection is where an appraisal begins
Our first duty at Alliance Appraisal, Inc. is to inspect the property to determine its true status. We must see aspects of the property hands on, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they really exist and are in the condition a reasonable person would expect them to be. To ensure the stated square footage has not been misrepresented and document the layout of the property, the inspection often entails creating a sketch of the floorplan. Most importantly, we identify any obvious features - or defects - that would have an impact on the value of the house.
Following the inspection, an appraiser uses 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.
This is where the appraiser pulls information on local construction costs, labor rates and other factors to derive how much it would cost to construct a property comparable to the one being appraised. This value often sets the maximum on what a property would sell for. It's also the least used method.
Paired Sales Analysis
Appraisers can tell you a lot about the neighborhoods in which they appraise. They thoroughly understand the value of particular features to the homeowners of that area. Then, the appraiser looks up recent transactions in close proximity to the subject 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 extra storage space, we add or subtract from each comparable's sales price so that they more accurately match the features of subject property.
An opinion of what the subject might sell for can only be determined once all differences between the comps and the subject have been evaluated. At Alliance Appraisal, Inc., we are experts in knowing the value of particular items in Clifton and Fairfax County neighborhoods. The sales comparison approach to value is commonly awarded the most importance when an appraisal is for a home exchange.
Valuation Using the Income Approach
A third way of valuing real estate is sometimes used when a neighborhood has a reasonable number of renter occupied properties. In this case, the amount of income the real estate yields is factored in with income produced by nearby properties to derive the current value.
Putting It All Together
Examining the data from all approaches, the appraiser is then ready to state an estimated market value for the subject property. It is important to note that while this amount is probably the most accurate indication of what a property is worth, 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'. But 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 case they had to sell the property again. The bottom line is, an appraiser from Alliance Appraisal, Inc. will guarantee you get the most fair and balanced property value, so you can make the most informed real estate decisions.