Understanding the Appraisal ProcessPurchasing real estate can be the largest investment some may ever consider. Whether it's where you raise your family, an additional vacation home or a rental fixer upper, purchasing real property is an involved transaction that requires multiple people working in concert to pull it all off. Practically all the parties involved are very familiar. The most known person in the exchange is the real estate agent. Next, the lender provides the financial capital necessary to finance the deal. And the title company makes sure that all details of the transaction are completed and that a clear title transfers from the seller to the buyer. So, what party is responsible for making sure the property is worth 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 parcel of real estate, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Ferrara Appraisals will ensure, you as an interested party, are informed. The inspection is where an appraisal startsTo ascertain the true status of the property, it's our responsibility to first complete a thorough inspection. We must see features first hand, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they really exist and are in the condition a reasonable buyer would expect them to be. The inspection often includes a sketch of the floorplan, ensuring the square footage is correct and conveying the layout of the property. Most importantly, we look for any obvious amenities - or defects - that would affect the value of the property. Back at the office, we use 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. Cost ApproachThis is where the appraiser gathers information on local construction costs, the cost of labor and other elements to derive how much it would cost to construct a property nearly identical to the one being appraised. This estimate usually sets the maximum on what a property would sell for. The cost approach is also the least used predictor of value. Sales ComparisonAppraisers become very familiar with the subdivisions in which they appraise. They innately understand the value of certain features to the homeowners of that area. Then, the appraiser looks up recent transactions in the area and finds properties which are 'comparable' to the real estate in question. 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 are more accurately in line with the features of subject property.
In the end, 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 valuing features of homes in and Montgomery, Ferrara Appraisals is your local authority. This approach to value is typically given the most importance when an appraisal is for a real estate exchange. Valuation Using the Income ApproachA third way of valuing real estate is sometimes employed when an area has a reasonable number of renter occupied properties. In this situation, the amount of income the property yields is taken into consideration along with income produced by nearby properties to give an indicator of the current value. ReconciliationCombining information from all approaches, the appraiser is then ready to put down an estimated market value for the property in question. The estimate of value on the appraisal report is not necessarily 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. 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. It all comes down to this, an appraiser from Ferrara Appraisals will guarantee you attain the most fair and balanced property value, so you can make the most informed real estate decisions. |