Real Estate Appraisals: A Primer
Acquiring a home can be the most serious transaction most people might ever make. Whether it's where you raise your family, a seasonal vacation home or a rental fixer upper, the purchase of real property is a complex transaction that requires multiple parties to make it all happen.
The majority of the participants are very familiar. The real estate agent is the most known person in the exchange. Next, the lender provides the money necessary to finance the transaction. And ensuring all requirements of the transaction are completed and that a clear title transfers to the buyer from the seller is the title company.
So, what party makes sure the value of the property is in line with the amount being paid? In comes the appraiser. We provide an unbiased opinion of what a buyer might 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 Kent & Associates Appraisal will ensure, you as an interested party, are informed.
Appraisals start with the home inspection
Our first duty at Kent & Associates Appraisal is to inspect the property to determine its true status. We must physically view features, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they indeed are present 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 identify any obvious amenities - or defects - that would affect the value of the property.
Following the inspection, we use two or three approaches to determining the value of the property: paired sales analysis and, in the case of a rental property, an income approach.
This is where we analyze information on local building costs, labor rates and other elements to derive how much it would cost to replace the property being appraised. This value commonly sets the maximum on what a property would sell for. The cost approach is also the least used method.
Appraisers get to know the subdivisions in which they work. They innately understand the value of certain features to the people of that area. Then, the appraiser looks up recent sales in close proximity to the subject and finds properties which are 'comparable' to the home in question. By assigning a dollar value to 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 portray the features of subject property.
After all differences have been accounted for, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At Kent & Associates Appraisal, we are experts in knowing the value of particular items in Mill Creek and Snohomish County neighborhoods. The sales comparison approach to value is typically given the most weight when an appraisal is for a home sale.
Valuation Using the Income Approach
A third way of valuing a property is sometimes used when a neighborhood has a reasonable number of rental properties. In this situation, the amount of revenue the property generates is factored in with income produced by nearby properties to derive the current value.
Combining information from all applicable approaches, the appraiser is then ready to stipulate an estimated market value for the subject property. The estimate of value at the bottom of the appraisal report is not necessarily the final sales price even though it is likely the best indication of what a property is worth. Prices can always be driven up or down by extenuating circumstances like the motivation or urgency of a seller or 'bidding wars'. But 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 sell the property again. It all comes down to this, an appraiser from Kent & Associates Appraisal will help you discover the most accurate property value, so you can make the most informed real estate decisions.