An Overview of the Appraisal Process
One's home purchase
It doesn't matter if it's
a main residence,
a second vacation property or
a rental fixer upper, the purchase of real property is
a complex transaction that requires multiple parties to pull it all off.
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Practically all the parties involved are quite familiar.
The real estate agent is the most familiar entity in the exchange.
Next, the bank provides the money needed to finance the exchange.
The title company ensures that all details of the exchange are completed and that the title is clear to transfer from the seller to the buyer.
So what party is responsible for making sure the value of the real estate is consistent with the amount being paid?
This is where the appraiser comes in. 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 professional Texas licensed appraiser from Hertel Real Estate Appraisal will ensure you as an interested party are informed.
The inspection is where an appraisal begins
To ascertain the true status of the property, it's our responsibility to first perform a thorough inspection.
We must actually view features, such as the number of bedrooms and bathrooms, the location, living areas, etc., to ensure they truly exist and are in the shape a reasonable buyer would expect them to be.
The inspection often includes a sketch of the house, ensuring the square footage is accurate and illustrating the layout of the property.
Most importantly, the appraiser looks for any obvious features - or defects - that would affect the value of the property.
Next, after 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.
This is where the appraiser analyzes information on local building costs, the cost of labor and other elements to ascertain 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.
Appraisers are intimately familiar with the communities in which they appraise.
We innately understand the value of particular features to the homeowners of that area.
Then, the appraiser looks up recent sales in the vicinity and finds properties which are 'comparable' to the property 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.
After all differences have been accounted for, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for.
The sales comparison approach to value is typically awarded the most weight when an appraisal is for a home sale.
Say, for example, the comparable property has a storm shelter and the subject does not, the appraiser may subtract the value of a storm shelter from the sales price of the comparable.
If the subject property has an extra half-bathroom and the comparable does not, the appraiser might add an amount to the comparable property.
Valuation Using the Income Approach
A third method of valuing a property is sometimes used when a neighborhood has a reasonable number of rental properties.
In this situation, the amount of revenue the real estate yields is factored in with income produced by nearby properties to derive the current value.
Coming Up With the Final Value
Combining information from all approaches, the appraiser is then ready to put down an estimated market value for the subject property.
The estimate of value at the bottom of the appraisal report is not necessarily the final sales price even though it is likely the best indication of a property's market value
There are always mitigating factors such as seller motivation, urgency or 'bidding wars' that may adjust an offer or listing price up or down.
Regardless, the appraised value is typically employed as a guideline for lenders who don't want to loan a buyer more money than the property would likely sell for in an open marketplace.
Here's what it all boils down to: An appraiser from Hertel Real Estate Appraisal will guarantee you attain the most fair and balanced property value, so you can make profitable real estate decisions.
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