Understanding the Appraisal Process
Buying a home can be the biggest investment most of us may ever make. Whether it's where you raise your family, a seasonal vacation home or an investment, purchasing real property is a detailed financial transaction that requires multiple parties to make it all happen.
Most people are familiar with the parties having a role in the transaction. The real estate agent is the most known face in the exchange. Then, the mortgage company provides the money necessary to bankroll the exchange. The title company makes sure that all aspects of the sale are completed and that a clear title passes to the buyer from the seller.
So, who's responsible for making sure the real estate is worth the purchase price? This is where the appraiser comes in. 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 ascertain the true status of the property, it's our duty to first perform a thorough inspection. We must actually view aspects of the property, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they truly exist and are in the condition a typical buyer would expect them to be. To make sure the stated square footage has not been misrepresented and document the layout of the property, the inspection often entails creating a sketch of the floorplan. Most importantly, we look for any obvious amenities - or defects - that would affect the value of the house.
Following the inspection, an appraiser uses two or three approaches to determining the value of real property: sales comparison and, in the case of a rental property, an income approach.
This is where the appraiser analyzes information on local building costs, the cost of labor and other elements to figure out how much it would cost to replace the property being appraised. This value usually sets the upper limit on what a property would sell for. It's also the least used predictor of value.
Analyzing Comparable Sales
Appraisers become very familiar with the neighborhoods in which they appraise. They thoroughly understand the value of particular features to the homeowners of that area. Then, the appraiser researches recent transactions in the area and finds properties which are 'comparable' to the property in question. By assigning a dollar value to certain items such as upgraded appliances, extra 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 property.
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. When it comes to associating a value with features of homes in Beverly and Essex, Tierney Appraisals is second to none. The sales comparison approach to value is typically given the most importance when an appraisal is for a real estate sale.
Valuation Using the Income Approach
A third method of valuing a property is sometimes employed when an area has a measurable number of renter occupied properties. In this situation, the amount of revenue the property yields is taken into consideration along with other rents in the area for comparable properties to determine the current value.
The Bottom Line
Combining information from all approaches, the appraiser is then ready to state an estimated market value for the subject property. The estimate of value on the appraisal report is not always what's being paid for the property even though it is likely the best indication of a property's valueDepending on the individual situations 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.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. Here's what it all boils down to, an appraiser from Tierney Appraisals will guarantee you discover the most fair and balanced property value, so you can make profitable real estate decisions.