What Are the Components of an Appraisal?
A home purchase is the biggest investment most may ever consider. It doesn't matter if a primary residence, a seasonal vacation property or an investment, purchasing real property is a complex financial transaction that requires multiple parties to pull it all off.
Practically all the parties participating are very familiar. The real estate agent is the most familiar face in the exchange. Next, the bank provides the money needed to bankroll the deal. The title company makes sure that all areas 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 real estate is worth the purchase price? This is where the appraiser comes in. We provide an unbiased estimate 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 North Wing Appraisal will ensure, you as an interested party, are informed.
The inspection is where an appraisal begins
Our first task at North Wing Appraisal is to inspect the property to ascertain its true status. We must see aspects of the property first hand, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they indeed are there and are in the condition a typical buyer would expect them to be. To ensure the stated size of the property is accurate and document the layout of the home, the inspection often includes creating a sketch of the floorplan. Most importantly, we look for any obvious features - or defects - that would have an impact on the value of the property.
Back at the office, we use two or three approaches to determining the value of real property: sales comparison and, in the case of a rental property, an income approach.
Here, the appraiser uses information on local building costs, labor rates and other factors to determine 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 predictor of value.
Appraisers can tell you a lot about the communities in which they work. They innately understand the value of certain features to the homeowners of that area. Then, the appraiser looks up recent sales in the area and finds properties which are 'comparable' to the real estate being appraised. Using knowledge of the value of certain items such as upgraded appliances, additional bathrooms, additional living area, quality of construction, lot size, 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 could sell for can only be determined once all differences between the comps and the subject have been evaluated. At North Wing Appraisal, we are experts when it comes to knowing the value of real estate features in Traverse City and Grand Traverse County neighborhoods. This approach to value is typically given the most importance when an appraisal is for a home sale.
Valuation Using the Income Approach
In the case of income producing properties - rental houses for example - we may use a third way of valuing a property. In this case, the amount of income the real estate produces is factored in with income produced by similar properties to determine the current value.
The Bottom Line
Examining the data from all approaches, the appraiser is then ready to stipulate an estimated market value for the subject property. Note: 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. Depending on the individual circumstances of the buyer or seller, their level of urgency or a buyer's desire for that exact property, the closing price of a home can always be driven up or down.Regardless, the appraised value is often employed as a guideline for lenders who don't want to loan a buyer more money than they could get back in case they had to put the property on the market again. The bottom line is, an appraiser from North Wing Appraisal will guarantee you discover the most fair and balanced property value, so you can make wise real estate decisions.