Home Appraisals: A Primer
Acquiring a house can be the most important investment many might ever encounter. It doesn't matter if where you raise your family, a second vacation property or an investment, the purchase of real property is an involved financial transaction that requires multiple parties to pull it all off.
It's likely you are familiar with the parties having a role in the transaction. The most familiar entity in the transaction is the real estate agent. Next, the lender provides the financial capital necessary to finance the transaction. And ensuring all aspects of the sale are completed and that a clear title transfers to the buyer from the seller is the title company.
So, what party is responsible for making sure the value of the real estate is in line with the amount being paid? In comes the appraiser. We provide an unbiased opinion of what a buyer could 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.
The inspection is where an appraisal starts
Our first task at PLM Appraisals is to inspect the property to ascertain its true status. We must actually see features, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they really are there and are in the condition a reasonable person 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 uses 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.
Here, we gather information on local construction costs, labor rates and other factors to derive 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. It's also the least used method.
Paired Sales Analysis
Appraisers are intimately familiar with the neighborhoods in which they appraise. They innately understand the value of particular features to the residents of that area. Then, the appraiser researches recent sales in close proximity to the subject and finds properties which are 'comparable' to the home 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 add or subtract from each comparable's sales price so that they more accurately match the features of subject property.
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 PLM Appraisals, we are an authority in knowing the value of real estate features in Norfolk and Norfolk City County neighborhoods. This approach to value is typically awarded the most consideration when an appraisal is for a home sale.
Valuation Using the Income Approach
A third method of valuing a property is sometimes applied when an area has a reasonable number of renter occupied properties. In this situation, the amount of revenue the property produces is factored in with other rents in the area for comparable properties to derive the current value.
Coming Up With The Final Value
Combining information from all applicable approaches, the appraiser is then ready to state an estimated market value for the property at hand. It is important to note that while this amount is probably the strongest indication of what a house is worth, it may not be the price at which the property closes. 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 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.