What Goes Into an Appraisal?
Purchasing a house is the biggest investment some could ever make. Whether it's where you raise your family, a seasonal vacation property or one of many rentals, the purchase of real property is a detailed transaction that requires multiple parties to see it through.
It's likely you are familiar with the parties taking part in the transaction. The most familiar entity in the exchange is the real estate agent. Next, the lender provides the money required to fund the transaction. The title company ensures that all requirements of the transaction are completed and that a clear title transfers from the seller to the purchaser.
So, who makes sure the value of the real estate is consistent with the amount being paid? In comes 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 licensed, certified, professional appraiser from TEXAS REAL ESTATE APPRAISERS will ensure, you as an interested party, are informed.
Inspecting the subject property
Our first duty at TEXAS REAL ESTATE APPRAISERS is to inspect the property to determine its true status. We must physically view aspects of the property, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they truly are present and are in the shape a reasonable buyer would expect them to be. To make sure the stated square footage has not been misrepresented and illustrate the layout of the home, the inspection often entails creating a sketch of the floorplan. Most importantly, we identify any obvious amenities - or defects - that would affect the value of the house.
Next, after the inspection, an appraiser uses two or three approaches to determining the value of real property: paired sales analysis and, in the case of a rental property, an income approach.
Here, we gather information on local building costs, the cost of labor and other factors to figure out how much it would cost to replace the property being appraised. This value often sets the upper limit on what a property would sell for. The cost approach is also the least used predictor of value.
Paired Sales Analysis
Appraisers become very familiar with the communities in which they work. They innately understand the value of certain features to the residents of that area. Then, the appraiser looks up recent sales in the area and finds properties which are 'comparable' to the home at hand. Using knowledge of the value of 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 are more accurately in line with 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 TEXAS REAL ESTATE APPRAISERS, we are experts in knowing the worth of real estate features in Keene and Johnson County neighborhoods. The sales comparison approach to value is most often given the most importance when an appraisal is for a real estate purchase.
Valuation Using the Income Approach
A third method of valuing a property is sometimes applied when an area has a measurable number of rental properties. In this scenario, the amount of revenue the real estate produces is factored in with income produced by neighboring properties to give an indicator of the current value.
The Bottom Line
Combining information from all approaches, the appraiser is then ready to state an estimated market value for the property in question. 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 what a property is worth. It's not uncommon for prices to be driven up or down by extenuating circumstances like the motivation or urgency of a seller or 'bidding wars'. But the appraised value is typically used as a guideline for lenders who don't want to loan a buyer more money than they could recover in the event they had to put the property on the market again. The bottom line is, an appraiser from TEXAS REAL ESTATE APPRAISERS will help you discover the most accurate property value, so you can make profitable real estate decisions.