What Are the Components of an Appraisal?
Getting a house is the most important transaction some people will ever encounter. Whether it's a primary residence, an additional vacation property or an investment, purchasing real property is an involved financial transaction that requires multiple people working in concert to see it through.
Most of the people participating are quite familiar. The most familiar entity in the exchange is the real estate agent. Then, the bank provides the financial capital necessary to bankroll the deal. The title company sees to it that all areas of the transaction are completed and that a clear title passes to the buyer from the seller.
So, what party makes sure the property is worth the purchase price? This is where you meet 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 Performance Appraisals Inc. will ensure, you as an interested party, are informed.
The inspection is where an appraisal starts
Our first task at Performance Appraisals Inc. is to inspect the property to determine its true status. We must actually view aspects of the property, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they truly 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 accurate and conveying the layout of the property. Most importantly, we look for any obvious features - or defects - that would affect the value of the property.
Back at the office, 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 we pull 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 often sets the maximum on what a property would sell for. The cost approach is also the least used method.
Analyzing Comparable Sales
Appraisers become very familiar with the subdivisions in which they appraise. They innately understand the value of particular features to the people of that area. Then, the appraiser researches recent transactions 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 fireplaces, room layout, appliance upgrades, extra bathrooms or bedrooms, or quality of construction, we adjust the comparable properties so that they more accurately match the features of subject.
A valid estimate of what the subject might sell for can only be determined once all differences between the comps and the subject have been evaluated. At Performance Appraisals Inc., we are experts in knowing the worth of real estate features in Ponte Vedra Beach and Saint Johns County neighborhoods. The sales comparison approach to value is usually awarded the most weight when an appraisal is for a home purchase.
Valuation Using the Income Approach
A third way of valuing a property is sometimes applied when an area has a reasonable number of rental properties. In this situation, the amount of revenue the property produces is factored in with other rents in the area for comparable properties to give an indicator of the current value.
Examining the data from all applicable approaches, the appraiser is then ready to state an estimated market value for the property at hand. The estimate of value at the bottom of the appraisal report is not always the final sales price even though it is likely the best indication of what a property is worth. It's not uncommon for prices to be driven up or down by extenuating circumstances like the motivation or urgency of a seller or 'bidding wars'. But the appraised value is often employed as a guideline for lenders who don't want to loan a buyer more money than they could recover in case they had to sell the property again. At the end of the day, an appraiser from Performance Appraisals Inc. will help you get the most accurate property value, so you can make the most informed real estate decisions.