What Are the Components of an Appraisal?A home purchase is the most significant investment many may ever make. Whether it's a primary residence, a seasonal vacation property or one of many rentals, the purchase of real property is a complex financial transaction that requires multiple parties to pull it all off. You're probably familiar with the parties having a role in the transaction. The real estate agent is the most recognizable entity in the transaction. Then, the lender provides the money required to finance the transaction. And ensuring all requirements of the exchange are completed and that a clear title transfers to the buyer from the seller is the title company. So, who's responsible for making sure the property is worth the amount being paid? This is where you meet the appraiser. We provide an unbiased estimate of what a buyer might expect to pay — or a seller receive — for a property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Appraisals by Kana will ensure, you as an interested party, are informed. Appraisals begin with the home inspectionTo determine an accurate status of the property, it's our responsibility to first perform a thorough inspection. We must physically see aspects of the property, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they indeed 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, the appraiser looks for any obvious features - or defects - that would have an impact on the value of the house. Once the site has been inspected, we use two or three approaches to determining the value of the property: sales comparison and, in the case of a rental property, an income approach. Replacement CostThis is where the appraiser uses information on local construction costs, labor rates and other elements to figure out 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. The cost approach is also the least used predictor of value. Paired Sales AnalysisAppraisers become very familiar with the subdivisions in which they appraise. They innately understand the value of specific features to the people of that area. Then, the appraiser looks up recent sales in close proximity to the subject and finds properties which are 'comparable' to the real estate at hand. Using knowledge of the value of certain items such as remodeled rooms, types of flooring, energy efficient items, patios and porches, or additional storage space, we adjust the comparable properties so that they more accurately match the features of subject.
In the end, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At Appraisals by Kana, we are an authority when it comes to knowing the value of particular items in Lafayette and Lafayette County neighborhoods. The sales comparison approach to value is most often given the most weight when an appraisal is for a real estate purchase. Valuation Using the Income ApproachA third method of valuing real estate is sometimes applied when an area has a measurable number of rental properties. In this case, the amount of income the property produces is factored in with income produced by comparable properties to derive the current value. The Bottom LineCombining information from all applicable approaches, the appraiser is then ready to document an estimated market value for the property in question. It is important to note that while the appraised value is probably the best indication of what a property is worth, it may not be the price at which the property closes. There 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 Appraisals by Kana will help you attain the most fair and balanced property value, so you can make profitable real estate decisions. |