Real Property Appraisals: A PrimerA home purchase is the most serious financial decision many of us will ever encounter. Whether it's a main residence, an additional vacation property or a rental fixer upper, the purchase of real property is a detailed transaction that requires multiple parties to pull it all off.
It's likely you are familiar with the parties having a role in the transaction. The most recognizable person in the exchange is the real estate agent. Then, the lender provides the money required to fund the transaction. The title company sees to it that all details of the exchange are completed and that the title is clear to pass to the buyer from the seller.
So what party is responsible for making sure the value of the real estate is in line with the purchase price? This is where you meet the appraiser. We provide an unbiased estimate of what a buyer might expect to pay - or a seller receive - for a property, where both buyer and seller are informed parties. A professional Illinois licensed appraiser from Appraisal Solutions will ensure you as an interested party are informed.
Inspecting the subject propertyOur first responsibility at Appraisal Solutions is to inspect the property to ascertain its true status. We must see features hands on, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they really are present 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 describe the layout of the home, the inspection often includes creating a sketch of the floor plan. Most importantly, we identify any obvious features - or defects - that would have an impact on the value of the house.
Once the site has been inspected, we use two or three approaches when determining the value of real property: a sales comparison, a replacement cost calculation, and an income approach when rental properties are prevalent.
Cost ApproachHere, we gather information on local building costs, the cost of labor and other factors to determine how much it would cost to replace the property being appraised. This figure commonly sets the maximum on what a property would sell for. The cost approach is also the least used method.
Analyzing Comparable SalesAppraisers get to know the communities in which they work. We thoroughly understand the value of specific features to the residents of that area. Then, the appraiser looks up recent transactions in close proximity to the subject and finds properties which are 'comparable' to the subject at hand. By assigning a dollar value to certain items such as square footage, additional bathrooms, hardwood floors, fireplaces or view lots (just to name a few), we adjust the comparable properties so that they are more accurately in line with the features of subject property.
Valuation Using the Income ApproachIn the case of income producing properties - rental houses for example - we may use a third way of valuing real estate. In this scenario, the amount of revenue the real estate yields is taken into consideration along with income produced by neighboring properties to determine the current value.
ReconciliationExamining the data from all applicable approaches, the appraiser is then ready to stipulate an estimated market value for the subject property. 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 market value There are always mitigating factors such as seller motivation, urgency or 'bidding wars' that may adjust the final price up or down. Regardless, the appraised value is often used as a guideline for lenders who don't want to loan a buyer more money than they could get back in the event they had to sell the property again. Here's what it all boils down to: An appraiser from Appraisal Solutions will help you get the most accurate property value, so you can make the most informed real estate decisions.