What Are the Components of an Appraisal?
Getting a home can be the most important financial decision many people will ever consider. It doesn't matter if where you raise your family, a second vacation home or a rental fixer upper, purchasing real property is an involved transaction that requires multiple parties to see it through.
The majority of the people participating are very familiar. The real estate agent is the most recognizable entity in the transaction. Next, the bank provides the financial capital needed to finance the transaction. And the title company ensures that all aspects of the transaction are completed and that the title is clear to transfer to the buyer from the seller.
So, what party makes sure the property is worth the purchase price? This is where the appraiser comes in. We provide an unbiased opinion 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 Young Appraisal Company, Inc. will ensure, you as an interested party, are informed.
Appraisals begin with the property inspection
To determine the true status of the property, it's our responsibility to first complete a thorough inspection. We must physically view features, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they truly are there and are in the condition a reasonable buyer would expect them to be. The inspection often includes a sketch of the property, ensuring the square footage is proper and illustrating the layout of the property. Most importantly, we look for any obvious amenities - or defects - that would affect the value of the property.
Once the site has been inspected, 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.
This is where we pull information on local building costs, the cost of labor and other elements to derive how much it would cost to build a property nearly identical to the one being appraised. This estimate commonly sets the upper limit on what a property would sell for. It's also the least used method.
Analyzing Comparable Sales
Appraisers get to know the communities in which they work. They thoroughly understand the value of certain features to the homeowners of that area. Then, the appraiser looks up recent transactions in the neighborhood and finds properties which are 'comparable' to the real estate being appraised. Using knowledge of the value of certain items such as remodeled rooms, types of flooring, energy efficient items, patios and porches, or additional storage space, we adjust the comparable properties so that they more accurately portray the features of subject property.
In the end, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At Young Appraisal Company, Inc., we are experts in knowing the worth of real estate features in North Richland Hills and Tarrant County neighborhoods. The sales comparison approach to value is commonly given the most weight when an appraisal is for a real estate purchase.
Valuation Using the Income Approach
A third method of valuing real estate is sometimes employed when an area has a reasonable number of renter occupied properties. In this situation, the amount of revenue the real estate produces is factored in with income produced by comparable properties to determine 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 subject property. Note: While the appraised value is probably the most accurate indication of what a property is worth, it probably will not be the price at which the property closes. There are always mitigating factors such as the seller's desire to get out of the property, urgency or 'bidding wars' that may adjust an offer or listing 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 the property is actually worth. At the end of the day, an appraiser from Young Appraisal Company, Inc. will help you attain the most accurate property value, so you can make the most informed real estate decisions.