A transaction involving a home can often be the highest value financial decision people conduct. It doesn’t matter if it’s a primary residence, a second vacation property or one of many rental properties, a transaction involving a home requires multiple people working together.
In addition to a seller and a purchaser the involved parties can include real estate agents, lenders, title companies and lawyers.
The Appraiser provides an unbiased opinion of value of what a buyer could expect to pay – or a seller receive – where both buyer and seller are informed parties. An appraiser is often the only unbiased party in a transaction. You may have an idea about what your home or property is worth but the value you come up with could be quite different from the opinion of value that a professional real estate appraiser determines. The cost of an appraisal is very small compared to the potential value it provides.
Getting an Appraisal on Your Home or Property
An appraisal on your home is a professional opinion of the value of your property from someone who is trained and state certified. Many factors are analyzed to develop an opinion of value of your property (location, views, features, upgrades, amenities).
The Appraisal Inspection
The Appraiser typically physically inspects the property to understand the attributes of the home. The inspection usually includes measuring the home and creating a sketch to determine its size. Among many aspects, the Appraiser will look at the location, available views, overall condition and level of upgrades.
The Sales Comparison Approach
The Sales Comparison Approach involves finding properties in your market area that are similar to yours that have sold recently. The Appraiser will research these sales to find properties suitable to use as ‘comparable’ sales. Adjustments are made to account for the differences between the subject property and the comparable properties. After the differences have been adjusted for, the appraiser reconciles the adjusted sales prices of the comparable properties to develop an opinion of value. This is the generally the approach that is given the most weight.
The Cost Approach
This approach involves gathering information on the value of the land, local construction costs, the cost of labor and other factors to determine what it would cost to construct the subject property. Depreciation factors are then deducted. This approach is often given less weight, particularly with older homes that have varying depreciation factors and are in established neighborhoods.
The Income Approach
This approach can be used when there are a reasonable number of rental properties that have recently sold. This sales price information together with the rental rates can be used to determine an opinion of value based on a potential rental rate of the Subject property.
Reconciliation/Opinion of Value
After analyzing the data from all applicable approaches, the Appraiser will reconcile the information and develop an opinion of value. The Appraisal will give you valuable information to help you make an informed decision.