Real Estate Appraisals: A Primer
Buying real estate can be the most significant financial decision many of us may 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 a detailed transaction that requires multiple people working in concert to pull it all off.
It's likely you are familiar with the parties taking part in the transaction. The real estate agent is the most familiar person in the transaction. Then, the bank provides the money required to fund the deal. And ensuring all requirements of the transaction are completed and that a clear title transfers from the seller to the purchaser is the title company.
So, what party makes sure the value of the real estate is consistent with the purchase price? This is where the appraiser comes in. 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 Anderson Appraisal, LLC will ensure, you as an interested party, are informed.
The inspection is where an appraisal starts
Our first responsibility at Anderson Appraisal, LLC is to inspect the property to determine its true status. We must actually view aspects of the property, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they really exist and are in the shape a reasonable buyer would expect them to be. To make sure the stated square footage is accurate and convey the layout of the property, the inspection often entails creating a sketch of the floorplan. Most importantly, we look for any obvious features - or defects - that would have an impact on the value of the house.
Once the site has been inspected, 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.
This is where we pull information on local construction costs, the cost of labor and other elements to ascertain how much it would cost to build a property comparable to the one being appraised. This value commonly sets the upper limit on what a property would sell for. The cost approach is also the least used method.
Paired Sales Analysis
Appraisers become very familiar with the neighborhoods in which they appraise. They innately understand the value of specific features to the residents of that area. Then, the appraiser researches recent transactions in close proximity to the subject and finds properties which are 'comparable' to the real estate at hand. Using knowledge of the value of certain items such as square footage, additional 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 are more accurately in line with 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. At Anderson Appraisal, LLC, we are experts when it comes to knowing the worth of particular items in Amarillo and Randall County neighborhoods. The sales comparison approach to value is typically given the most importance when an appraisal is for a real estate exchange.
Valuation Using the Income Approach
A third way of valuing approach to value is sometimes used when a neighborhood has a measurable number of renter occupied properties. In this case, the amount of revenue the real estate produces is factored in with other rents in the area for comparable properties to give an indicator of the current value.
Putting It All Together
Combining information from all approaches, the appraiser is then ready to stipulate an estimated market value for the property at hand. The estimate of value at the bottom of the appraisal report is not always what's being paid for the property even though it is likely the best indication of a property's valueIt'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'. 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. It all comes down to this, an appraiser from Anderson Appraisal, LLC will help you discover the most fair and balanced property value, so you can make the most informed real estate decisions.