Real Property Appraisals: A Primer
Purchasing a house can be the largest financial decision some could ever encounter. It doesn't matter if a main residence, a seasonal vacation home or an investment, purchasing real property is a detailed financial transaction that requires multiple people working in concert to pull it all off.
Most people are familiar with the parties taking part in the transaction. The most recognizable person in the exchange is the real estate agent. Next, the bank provides the financial capital required to fund the exchange. And ensuring all areas of the sale are completed and that a clear title passes from the seller to the buyer is the title company.
So, who makes sure the value of the real estate is in line with the purchase price? In comes the appraiser. We provide an unbiased estimate of what a buyer could expect to pay — or a seller receive — for a property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Joseph Mier & Associates will ensure, you as an interested party, are informed.
Appraisals start with the inspection
To determine an accurate status of the property, it's our duty to first complete 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 indeed exist and are in the shape a typical person would expect them to be. The inspection often includes a sketch of the floorplan, ensuring the square footage is correct and illustrating the layout of the property. Most importantly, the appraiser identifies any obvious amenities - or defects - that would have an impact on the value of the property.
Following the inspection, we use 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.
This is where the appraiser uses information on local construction costs, the cost of labor and other factors to calculate how much it would cost to replace the property being appraised. This estimate usually sets the maximum on what a property would sell for. The cost approach is also the least used method.
Paired Sales Analysis
Appraisers get to know the subdivisions in which they appraise. They innately understand the value of particular features to the residents of that area. Then, the appraiser researches recent sales in close proximity to the subject and finds properties which are 'comparable' to the home being appraised. 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 are more accurately in line with the features of subject property.
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. At Joseph Mier & Associates, we are experts when it comes to knowing the value of real estate features in Hammond and Tangipahoa County neighborhoods. This approach to value is commonly awarded the most weight when an appraisal is for a real estate sale.
Valuation Using the Income Approach
A third method of valuing approach to value is sometimes employed when an area has a reasonable number of rental properties. In this scenario, the amount of income the property produces is taken into consideration along with other rents in the area for comparable properties to determine the current value.
Arriving at a Value Conclusion
Combining information from all approaches, the appraiser is then ready to document an estimated market value for the subject property. Note: While this amount is probably the most accurate indication of what a property is worth, it probably will not be the price at which the property closes. It's not uncommon for prices to be driven up or down by extenuating circumstances like the motivation or urgency of a seller or 'bidding wars'. 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. At the end of the day, an appraiser from Joseph Mier & Associates will help you get the most fair and balanced property value, so you can make profitable real estate decisions.