Decoding the Appraisal ProcessPurchasing real estate is the most significant transaction some of us may ever make. Whether it's a main residence, an additional vacation property or an investment, purchasing real property is a complex transaction that requires multiple people working in concert to see it through.
The majority of the people participating are quite familiar. The real estate agent is the most known person in the exchange. Next, the mortgage company provides the financial capital necessary to fund the deal. The title company makes sure that all requirements of the exchange are completed and that a clear title passes to the buyer from the seller.
So what party is responsible for making sure the value of the property is in line with the amount being paid? This is where you meet the appraiser. We provide an unbiased opinion of what a buyer might expect to pay - or a seller receive - for a parcel of real estate, where both buyer and seller are informed parties. A professional Texas licensed appraiser from Dedicated Appraisal Services, Inc will ensure you as an interested party are informed.
Inspecting the subject propertyTo ascertain the true status of the property, it's our duty to first perform a thorough inspection. We must see aspects of the property hands on, such as the number of bedrooms and bathrooms, the location, living areas, etc., to ensure they really are present and are in the shape a reasonable person would expect them to be. To ensure the stated square footage is accurate and document the layout of the house, the inspection often requires 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 property.
Following the inspection, an appraiser employs 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, the appraiser analyzes information on local construction costs, the cost of labor and other elements to calculate how much it would cost to replace the property being appraised. This value commonly sets the upper limit on what a property would sell for. It's also the least used predictor of value.
Paired Sales AnalysisAppraisers can tell you a lot about the subdivisions in which they appraise. We thoroughly understand the value of specific features to the homeowners 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 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 adjust the comparable properties so that they more accurately portray the features of subject.
Valuation Using the Income ApproachA third way of valuing approach to value is sometimes employed when a neighborhood has a reasonable number of rental properties. In this case, the amount of income the real estate produces is factored in with other rents in the area for comparable properties to give an indicator of the current value.
The Bottom LineExamining the data from all approaches, the appraiser is then ready to state an estimated market value for the subject property. The estimate of value on the appraisal report is not always the final sales price even though it is likely the best indication of what a property could sell for in an open market. Depending on the specific 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 they could get back in case they had to put the property on the market again. The bottom line is: An appraiser from Dedicated Appraisal Services, Inc will help you attain the most fair and balanced property value, so you can make the most informed real estate decisions.