Decoding the Appraisal Process
Getting a house is the largest investment some of us might ever make. Whether it's a primary residence, a seasonal vacation property or an investment, purchasing real property is a detailed transaction that requires multiple people working in concert to see it through.
Practically all the participants are quite familiar. The most recognizable face in the transaction is the real estate agent. Then, the bank provides the money needed to finance the deal. And ensuring all areas of the transaction are completed and that the title is clear to transfer from the seller to the purchaser 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 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 South Shore Appraisals will ensure, you as an interested party, are informed.
The inspection is where an appraisal starts
To ascertain the true status of the property, it's our responsibility to first complete a thorough inspection. We must physically view aspects of the property, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they indeed are there and are in the shape a typical buyer would expect them to be. The inspection often includes a sketch of the property, ensuring the square footage is correct and illustrating the layout of the property. Most importantly, we identify any obvious amenities - or defects - that would affect the value of the house.
After the inspection, an appraiser uses two or three approaches to determining the value of the property: sales comparison and, in the case of a rental property, an income approach.
Here, the appraiser gathers information on local building costs, the cost of labor and other elements to figure out 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.
Appraisers are intimately familiar with the neighborhoods in which they appraise. They innately understand the value of particular features to the homeowners of that area. Then, the appraiser researches recent transactions in the neighborhood and finds properties which are 'comparable' to the home at hand. 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.
After all differences have been accounted for, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At South Shore Appraisals, we are an authority in knowing the value of particular items in Schererville and Lake County neighborhoods. This approach to value is typically given the most consideration when an appraisal is for a real estate purchase.
Valuation Using the Income Approach
A third way of valuing approach to value is sometimes used when a neighborhood has a reasonable number of renter occupied properties. 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. It is important to note that while this amount is probably the most reliable indication of what a property is worth, it may not be the final sales price. Depending on the specific situations 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 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 South Shore Appraisals will help you attain the most accurate property value, so you can make profitable real estate decisions.