Making Sense of the Appraisal Process
Their home's purchase can be the biggest financial decision many of us might ever encounter. It doesn't matter if where you raise your family, an additional vacation home or a rental fixer upper, the purchase of real property is a complex financial transaction that requires multiple people working in concert to make it all happen.
You're probably familiar with the parties taking part in the transaction. The real estate agent is the most known person in the exchange. Next, the bank provides the money required to bankroll the exchange. And ensuring all details of the transaction are completed and that a clear title transfers to the buyer from the seller is the title company.
So, who's responsible for making sure the value of the property is consistent 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 property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Tierney Appraisals will ensure, you as an interested party, are informed.
The inspection is where an appraisal begins
To determine an accurate status of the property, it's our duty to first perform a thorough inspection. We must see features hands on, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they truly are there and are in the shape a typical buyer would expect them to be. To ensure the stated square footage has not been misrepresented and describe the layout of the house, the inspection often includes creating a sketch of the floorplan. Most importantly, the appraiser identifies any obvious features - or defects - that would have an impact on the value of the property.
Once the site has been inspected, 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 analyzes information on local building costs, the cost of labor and other elements to calculate how much it would cost to replace the property being appraised. This figure commonly sets the maximum on what a property would sell for. It's also the least used predictor of value.
Analyzing Comparable Sales
Appraisers get to know the neighborhoods in which they work. They innately understand the value of particular features to the residents of that area. Then, the appraiser looks up recent transactions in the vicinity and finds properties which are 'comparable' to the real estate at hand. Using knowledge of the value of certain items such as square footage, additional bathrooms, hardwood floors, fireplaces or view lots (just to name a few), we adjust the comparable properties so that they more accurately portray 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. When it comes to valuing features of homes in Beverly and Essex, Tierney Appraisals is your local authority. This approach to value is most often awarded the most importance when an appraisal is for a home purchase.
Valuation Using the Income Approach
A third way of valuing real estate is sometimes applied when an area has a reasonable number of rental properties. In this case, the amount of income the real estate produces is taken into consideration along with other rents in the area for comparable properties to give an indicator of the current value.
Combining information from all applicable approaches, the appraiser is then ready to put down an estimated market value for the subject property. 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 what a property is worth. There are always mitigating factors such as the seller's desire to get out of the property, urgency or 'bidding wars' that may adjust the final price up or down. But the appraised value is typically used as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. Here's what it all boils down to, an appraiser from Tierney Appraisals will guarantee you get the most accurate property value, so you can make profitable real estate decisions.