What Are the Components of an Appraisal?
Purchasing real estate can be the most serious transaction some people might ever make. Whether it's a primary residence, an additional vacation property or one of many rentals, purchasing real property is a detailed financial transaction that requires multiple people working in concert to make it all happen.
It's likely you are familiar with the parties having a role in the transaction. The real estate agent is the most recognizable person in the exchange. Then, the lender provides the money needed to bankroll the deal. And ensuring all areas of the sale are completed and that a clear title transfers to the buyer from the seller is the title company.
So, who's responsible for making sure the property is worth the purchase price? 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 parcel of real estate, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Early Edition, Inc. will ensure, you as an interested party, are informed.
The inspection is where an appraisal begins
To determine an accurate status of the property, it's our duty to first complete a thorough inspection. 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 condition a typical buyer would expect them to be. To make sure the stated size of the property has not been misrepresented and document the layout of the house, the inspection often requires creating a sketch of the floorplan. Most importantly, the appraiser identifies any obvious amenities - or defects - that would have an impact on the value of the property.
After the inspection, we use two or three approaches to determining the value of the property: paired sales analysis and, in the case of a rental property, an income approach.
Here, the appraiser uses information on local construction costs, the cost of labor and other factors to derive how much it would cost to replace the property being appraised. This value commonly sets the maximum on what a property would sell for. The cost approach is also the least used method.
Appraisers are intimately familiar with the neighborhoods in which they work. They thoroughly understand the value of particular features to the people 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 in question. 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 more accurately portray the features of subject.
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 Early Edition, Inc., we are experts in knowing the worth of particular items in Lewes and Sussex County neighborhoods. This approach to value is most often awarded the most importance when an appraisal is for a real estate exchange.
Valuation Using the Income Approach
A third method of valuing approach to value is sometimes applied when an area has a reasonable number of renter occupied properties. In this situation, the amount of revenue the real estate yields is taken into consideration along with other rents in the area for comparable properties to determine the current value.
Putting It All Together
Combining information from all approaches, the appraiser is then ready to put down an estimated market value for the subject property. It is important to note that while the appraised value is probably the most reliable indication of what a property is worth, it probably will not be the final sales price. 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 often employed 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 Early Edition, Inc. will guarantee you discover the most accurate property value, so you can make wise real estate decisions.