What Are the Components of an Appraisal?
A home purchase can be the most important investment many people could ever make. Whether it's where you raise your family, an additional vacation property or one of many rentals, the purchase of real property is an involved transaction that requires multiple parties to pull it all off.
The majority of the participants are quite familiar. The most recognizable entity in the transaction is the real estate agent. Then, the mortgage company provides the financial capital needed to fund the exchange. And the title company ensures that all details of the transaction are completed and that a clear title transfers to the buyer from the seller.
So, who's responsible for making sure the value of the property is consistent with the purchase price? In comes 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 W. Eric Howard & Associates will ensure, you as an interested party, are informed.
Inspecting the subject property
Our first responsibility at W. Eric Howard & Associates is to inspect the property to ascertain its true status. We must actually see aspects of the property, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they indeed are present and are in the condition a typical person would expect them to be. The inspection often includes a sketch of the floorplan, ensuring the square footage is proper and conveying the layout of the property. Most importantly, the appraiser identifies any obvious amenities - or defects - that would have an impact on the value of the property.
After the inspection, an appraiser uses two or three approaches to determining the value of real property: a sales comparison, a replacement cost calculation, and an income approach when rental properties are prevalent.
This is where the appraiser uses information on local building costs, labor rates and other factors to determine 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. It's also the least used method.
Appraisers become very familiar with the subdivisions in which they work. They innately understand the value of particular features to the homeowners of that area. Then, the appraiser researches recent sales in the vicinity and finds properties which are 'comparable' to the real estate at hand. Using knowledge of the value of certain items such as upgraded appliances, extra bathrooms, additional living area, quality of construction, lot size, we adjust the comparable properties so that they are more accurately in line with the features of subject.
Once all necessary adjustments have been made, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. When it comes to knowing the true worth of features of homes in Severn and Anne Arundel, W. Eric Howard & Associates can't be beat. This approach to value is usually given the most weight when an appraisal is for a real estate exchange.
Valuation Using the Income Approach
A third way of valuing real estate is sometimes applied when a neighborhood has a measurable number of rental properties. In this case, the amount of revenue the real estate yields is factored in with other rents in the area for comparable properties to determine the current value.
The Bottom Line
Analyzing the data from all approaches, the appraiser is then ready to document an estimated market value for the subject property. The estimate of value on 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 valueThere 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 employed as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. It all comes down to this, an appraiser from W. Eric Howard & Associates will help you get the most accurate property value, so you can make wise real estate decisions.