What Goes Into an Appraisal?
A home purchase is the biggest investment some of us will ever encounter. It doesn't matter if where you raise your family, a second vacation property or a rental fixer upper, the purchase of real property is a complex transaction that requires multiple parties to see it through.
Practically all the participants are quite familiar. The most known face in the transaction is the real estate agent. Then, the lender provides the money necessary to fund the transaction. The title company makes sure that all requirements of the exchange are completed and that the title is clear to pass from the seller to the purchaser.
So, what party is responsible for making sure the real estate is worth the amount being paid? In comes 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 PLM Appraisals will ensure, you as an interested party, are informed.
Inspecting the subject property
To determine the true status of the property, it's our duty to first conduct a thorough inspection. We must physically view features, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they really are present and are in the shape a reasonable person would expect them to be. To ensure the stated size of the property is accurate and describe the layout of the property, the inspection often requires creating a sketch of the floorplan. Most importantly, the appraiser identifies any obvious features - or defects - that would affect the value of the property.
Once the site has been inspected, we use two or three approaches to determining the value of the property: a paired sales analysis, a replacement cost calculation, and an income approach when rental properties are prevalent.
Here, we pull information on local building costs, labor rates and other elements to derive how much it would cost to construct a property comparable to the one 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.
Paired Sales Analysis
Appraisers can tell you a lot about the subdivisions in which they work. They thoroughly understand the value of specific features to the homeowners of that area. Then, the appraiser researches recent sales in the vicinity and finds properties which are 'comparable' to the subject at hand. Using knowledge of the value of certain items such as square footage, extra bathrooms, hardwood floors, fireplaces or view lots (just to name a few), we add or subtract from each comparable's sales price so that they more accurately match the features of subject.
An opinion of what the subject might sell for can only be determined once all differences between the comps and the subject have been evaluated. At PLM Appraisals, we are an authority when it comes to knowing the worth of real estate features in Norfolk and Norfolk City County neighborhoods. The sales comparison approach to value is typically awarded the most consideration when an appraisal is for a home purchase.
Valuation Using the Income Approach
In the case of income producing properties - rental houses for example - the appraiser may use a third method of valuing real estate. In this situation, the amount of income the real estate yields is factored in with income produced by comparable properties to give an indicator of the current value.
The Bottom Line
Examining the data from all approaches, the appraiser is then ready to state an estimated market value for the property in question. Note: While this amount is probably the most reliable indication of what a house is worth, it probably will not be the final sales price. 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 used 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 PLM Appraisals will guarantee you attain the most accurate property value, so you can make the most informed real estate decisions.