What Goes Into an Appraisal?
Buying real estate is the most important investment most of us will ever make. It doesn't matter if where you raise your family, a second vacation home or one of many rentals, purchasing real property is an involved transaction that requires multiple parties 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 recognizable entity in the transaction. Next, the mortgage company provides the financial capital needed to fund the deal. And ensuring all areas of the sale are completed and that the title is clear to transfer from the seller to the purchaser is the title company.
So, what party is responsible for making sure the real estate is worth the purchase price? This is where the appraiser comes in. We provide an unbiased estimate of what a buyer might 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 South Shore Appraisals will ensure, you as an interested party, are informed.
The inspection is where an appraisal begins
To determine the true status of the property, it's our duty to first perform a thorough inspection. We must actually see aspects of the property, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they truly exist and are in the condition a typical person would expect them to be. To make sure the stated size of the property has not been misrepresented and convey the layout of the home, the inspection often entails creating a sketch of the floorplan. Most importantly, the appraiser looks for any obvious features - 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: a sales comparison, a replacement cost calculation, and an income approach when rental properties are prevalent.
This is where we pull information on local building costs, labor rates and other factors to figure out how much it would cost to build a property similar to the one being appraised. This estimate often sets the maximum on what a property would sell for. It's also the least used method.
Appraisers are intimately familiar with the communities in which they appraise. They thoroughly 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 property at hand. Using knowledge of the value of certain items such as upgraded appliances, additional bathrooms, additional living area, quality of construction, lot size, we adjust the comparable properties 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. When it comes to putting a value on features of homes in Schererville and Lake, South Shore Appraisals is your local authority. This approach to value is typically awarded the most weight when an appraisal is for a home exchange.
Valuation Using the Income Approach
In the case of income producing properties - rental houses for example - we may use an additional approach to value. In this case, the amount of income the real estate generates is factored in with income produced by nearby properties to give an indicator of the current value.
Arriving at a Value Conclusion
Combining information from all approaches, the appraiser is then ready to state an estimated market value for the property at hand. It is important to note that while this amount is probably the best indication of what a property is worth, it probably will not be the price at which the property closes. Depending on the individual 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 they could recover in case they had to put the property on the market again. At the end of the day, an appraiser from South Shore Appraisals will guarantee you attain the most fair and balanced property value, so you can make wise real estate decisions.