What Are the Components of an Appraisal?
Acquiring a house can be the most important investment most of us could ever encounter. Whether it's where you raise your family, a seasonal vacation home or one of many rentals, the purchase of real property is a detailed financial transaction that requires multiple parties to make it all happen.
Most of the participants are quite familiar. The real estate agent is the most known person in the exchange. Then, the mortgage company provides the financial capital necessary to bankroll the deal. And the title company ensures that all aspects of the sale are completed and that a clear title passes to the buyer from the seller.
So, what party is responsible for making sure the value of the property is in line with the purchase price? 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 Kiesz & Associates, LLC will ensure, you as an interested party, are informed.
The inspection is where an appraisal begins
Our first duty at Kiesz & Associates, LLC is to inspect the property to ascertain its true status. We must see features first hand, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they indeed exist and are in the condition a reasonable buyer would expect them to be. The inspection often includes a sketch of the property, ensuring the square footage is proper and illustrating the layout of the property. Most importantly, we look for any obvious features - or defects - that would affect the value of the house.
Back at the office, an appraiser uses two or three approaches to determining the value of real property: a paired sales analysis, a replacement cost calculation, and an income approach when rental properties are prevalent.
Here, the appraiser gathers information on local construction 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 commonly sets the maximum on what a property would sell for. It's also the least used predictor of value.
Paired Sales Analysis
Appraisers become very familiar with the neighborhoods in which they appraise. They innately understand the value of specific features to the people of that area. Then, the appraiser looks up recent sales in the vicinity and finds properties which are 'comparable' to the real estate at hand. By assigning a dollar value to certain items such as fireplaces, room layout, appliance upgrades, extra bathrooms or bedrooms, or quality of construction, we add or subtract from each comparable's sales price so that they are more accurately in line with 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 Kiesz & Associates, LLC, we are an authority when it comes to knowing the value of particular items in Vancouver and Clackamas County neighborhoods. This approach to value is commonly given the most consideration when an appraisal is for a real estate purchase.
Valuation Using the Income Approach
In the case of income producing properties - rental houses for example - the appraiser may use an additional approach to value. In this situation, the amount of revenue the property yields is taken into consideration along with other rents in the area for comparable properties to derive the current value.
The Bottom Line
Combining information from all approaches, the appraiser is then ready to stipulate an estimated market value for the property in question. The estimate of value on the appraisal report is not necessarily what's being paid for the property even though it is likely the best indication of a property's valueIt'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'. Regardless, the appraised value is typically used as a guideline for lenders who don't want to loan a buyer more money than they could get back in the event they had to put the property on the market again. The bottom line is, an appraiser from Kiesz & Associates, LLC will help you attain the most fair and balanced property value, so you can make profitable real estate decisions.