Making Sense of the Appraisal Process
A home purchase can be the most important financial decision most of us will ever make. It doesn't matter if a primary residence, a seasonal vacation home or an investment, purchasing real property is an involved transaction that requires multiple parties to make it all happen.
Most of the parties participating are quite familiar. The real estate agent is the most familiar entity in the exchange. Then, the mortgage company provides the money needed to bankroll the transaction. And ensuring all requirements of the exchange are completed and that the title is clear to pass from the seller to the buyer is the title company.
So, what party makes sure the value of the property is consistent with the amount being paid? 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 Irvine Appraising Company will ensure, you as an interested party, are informed.
The inspection is where an appraisal begins
Our first duty at Irvine Appraising Company is to inspect the property to determine its true status. We must see features hands on, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they really are there and are in the shape a typical buyer would expect them to be. To ensure the stated size of the property has not been misrepresented and illustrate the layout of the property, the inspection often requires creating a sketch of the floorplan. Most importantly, we identify any obvious amenities - or defects - that would have an impact on the value of the property.
Once the site has been inspected, we use two or three approaches to determining the value of real property: a paired sales analysis, a replacement cost calculation, and an income approach when rental properties are prevalent.
Here, we pull information on local construction costs, labor rates and other factors to derive how much it would cost to replace the property being appraised. This figure often sets the maximum on what a property would sell for. The cost approach is also the least used method.
Analyzing Comparable Sales
Appraisers are intimately familiar with the communities in which they appraise. They thoroughly understand the value of specific features to the people of that area. Then, the appraiser researches recent transactions in the vicinity and finds properties which are 'comparable' to the real estate in question. By assigning a dollar value to certain items such as fireplaces, room layout, appliance upgrades, extra bathrooms or bedrooms, or quality of construction, we add or subtract from each comparable's sales price so that they more accurately match the features of subject.
After all differences have been accounted for, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At Irvine Appraising Company, we are an authority when it comes to knowing the worth of particular items in Salt Lake City and Salt Lake County neighborhoods. The sales comparison approach to value is typically given the most consideration when an appraisal is for a home exchange.
Valuation Using the Income Approach
A third method of valuing a property is sometimes employed when an area has a reasonable number of renter occupied properties. In this case, the amount of income the property yields is taken into consideration along with other rents in the area for comparable properties to determine the current value.
Analyzing the data from all applicable approaches, the appraiser is then ready to put down an estimated market value for the subject property. The estimate of value on the appraisal report is not necessarily the final sales price even though it is likely the best indication of what a property is worth. 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. But 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. The bottom line is, an appraiser from Irvine Appraising Company will guarantee you get the most accurate property value, so you can make profitable real estate decisions.