Comprehending Appraisals

A home purchase can be the biggest transaction most of us will ever encounter. It doesn't matter if where you raise your family, an additional vacation property or one of many rentals, purchasing real property is a complex transaction that requires multiple people working in concert to pull it all off.

It's likely you are familiar with the parties taking part in the transaction. The real estate agent is the most known entity in the transaction. Then, the bank provides the money needed to finance the transaction. And ensuring all details of the exchange are completed and that the title is clear to pass from the seller to the purchaser is the title company.

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So, what party is responsible for making sure the value of the real estate is consistent with the amount being paid? This is where you meet 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 Heimstreet Appraisals 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 complete a thorough inspection. We must see aspects of the property first hand, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they truly are there and are in the shape a typical person would expect them to be. The inspection often includes a sketch of the floorplan, ensuring the square footage is proper and illustrating the layout of the property. Most importantly, the appraiser identifies any obvious features - or defects - that would have an impact on the value of the property.

Following the inspection, we use two or three approaches to determining the value of the property: a sales comparison, a replacement cost calculation, and an income approach when rental properties are prevalent.

Replacement Cost

Here, the appraiser gathers information on local building costs, labor rates and other factors to figure out how much it would cost to build a property similar to the one being appraised. This estimate often sets the upper limit on what a property would sell for. It's also the least used predictor of value.

Analyzing Comparable Sales

Appraisers become very familiar with the neighborhoods in which they work. 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 property being appraised. By assigning a dollar value to 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 property.

  • For example, if the comparable property has an irrigation system and the subject does not, the appraiser may deduct the value of an irrigation system from the sales price of the comparable home.
  • If the subject has an extra half-bathroom and the comparable does not, the appraiser might add an amount to the comparable property.

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. When it comes to knowing the true worth of features of homes in Lake Mills and Jefferson, Heimstreet Appraisals can't be beat. The sales comparison approach to value is usually awarded the most weight when an appraisal is for a real estate sale.

Valuation Using the Income Approach

A third method of valuing real estate is sometimes used when a neighborhood has a measurable number of renter occupied properties. In this case, the amount of income the real estate generates is factored in with other rents in the area for comparable properties to determine the current value.

Coming Up With The Final Value

Examining the data from all applicable approaches, the appraiser is then ready to state an estimated market value for the property in question. The estimate of value on the appraisal report is not always the final sales price 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 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 is actually worth. The bottom line is, an appraiser from Heimstreet Appraisals will guarantee you attain the most fair and balanced property value, so you can make the most informed real estate decisions.