Real Estate Appraisals: A Primer
A home purchase is the largest investment many of us could ever make. It doesn't matter if where you raise your family, a seasonal vacation property or one of many rentals, the purchase of real property is an involved transaction that requires multiple people working in concert to see it through.
It's likely you are familiar with the parties having a role in the transaction. The real estate agent is the most familiar entity in the exchange. Next, the lender provides the money required to bankroll the exchange. And ensuring all requirements 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 is responsible for making sure the property is worth the amount being paid? This is where you meet the appraiser. 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 Barnes Appraisal Company will ensure, you as an interested party, are informed.
The inspection is where an appraisal starts
To determine an accurate status of the property, it's our duty to first perform a thorough inspection. We must see aspects of the property first hand, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they truly exist and are in the condition a reasonable buyer would expect them to be. To make sure the stated square footage has not been misrepresented and convey the layout of the property, the inspection often requires creating a sketch of the floorplan. Most importantly, we look for any obvious amenities - 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 we pull information on local construction costs, labor rates and other elements to calculate how much it would cost to build a property comparable to the one being appraised. This figure usually 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 can tell you a lot about the neighborhoods in which they work. They thoroughly understand the value of specific features to the people of that area. Then, the appraiser looks up recent transactions in close proximity to the subject and finds properties which are 'comparable' to the property being appraised. Using knowledge of the value of certain items such as square footage, extra bathrooms, hardwood floors, fireplaces or view lots (just to name a few), we add or subtract from each comparable's sales price so that they more accurately portray the features of subject.
Once all necessary adjustments have been made, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At Barnes Appraisal Company, we are experts in knowing the worth of particular items in Lawton and Comanche County neighborhoods. The sales comparison approach to value is usually awarded the most weight when an appraisal is for a real estate exchange.
Valuation Using the Income Approach
In the case of income producing properties - rental houses for example - we may use a third way of valuing a property. In this case, the amount of income the property produces is taken into consideration along with other rents in the area for comparable properties to determine the current value.
The Bottom Line
Combining information from all applicable approaches, the appraiser is then ready to document an estimated market value for the property at hand. Note: While this amount is probably the most accurate indication of what a property is worth, it probably will not be the final sales price. 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.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. At the end of the day, an appraiser from Barnes Appraisal Company will help you attain the most fair and balanced property value, so you can make wise real estate decisions.