What Are the Components of an Appraisal?
Purchasing a house is the most important transaction most might ever encounter. It doesn't matter if a main residence, a second vacation home or one of many rentals, purchasing real property is a complex financial transaction that requires multiple people working in concert to make it all happen.
The majority of the participants are quite familiar. The most familiar person in the exchange is the real estate agent. Next, the bank provides the money necessary to fund the deal. The title company makes sure that all details of the exchange are completed and that a clear title passes to the buyer from the seller.
So, who's responsible for making sure the value of the property is in line with the purchase price? In comes the appraiser. 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 Daniel Todd Appraisal Services, LLC will ensure, you as an interested party, are informed.
Inspecting the subject property
To ascertain the true status of the property, it's our responsibility to first conduct a thorough inspection. We must actually see features, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they really exist and are in the condition a typical person would expect them to be. The inspection often includes a sketch of the house, ensuring the square footage is proper and conveying the layout of the property. Most importantly, we identify any obvious features - or defects - that would affect the value of the house.
After the inspection, an appraiser uses 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, the appraiser gathers information on local building costs, the cost of labor and other factors to ascertain how much it would cost to replace the property being appraised. This value usually sets the upper limit on what a property would sell for. The cost approach is also the least used predictor of value.
Appraisers can tell you a lot about the subdivisions in which they appraise. They thoroughly understand the value of certain features to the homeowners of that area. Then, the appraiser looks up recent transactions in the area and finds properties which are 'comparable' to the subject being appraised. By assigning a dollar value to certain items such as square footage, additional bathrooms, hardwood floors, fireplaces or view lots (just to name a few), we adjust the comparable properties so that they more accurately match the features of subject.
A true estimate of what the subject could sell for can only be determined once all differences between the comps and the subject have been evaluated. At Daniel Todd Appraisal Services, LLC, we are an authority in knowing the value of real estate features in Bloomington and Monroe County neighborhoods. The sales comparison approach to value is most often awarded the most weight when an appraisal is for a real estate exchange.
Valuation Using the Income Approach
In the case of income producing properties - rental houses for example - we may use a third method of valuing a property. In this scenario, the amount of income the property generates is taken into consideration along with income produced by neighboring properties to derive the current value.
Combining information from all applicable approaches, the appraiser is then ready to document an estimated market value for the property at hand. It is important to note that while this amount is probably the most accurate indication of what a house 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. But the appraised value is typically 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 Daniel Todd Appraisal Services, LLC will guarantee you get the most fair and balanced property value, so you can make the most informed real estate decisions.