An Overview of the Appraisal ProcessGetting real estate can be the most significant transaction many may ever make. Whether it's a primary residence, a seasonal vacation home or one of many rentals, purchasing real property is an involved financial transaction that requires multiple parties to make it all happen.
Practically all the participants are very familiar. The most familiar person in the transaction is the real estate agent. Then, the bank provides the financial capital required to bankroll the transaction. The title company sees to it that all details of the transaction are completed and that a clear title transfers to the buyer from the seller.
So what party makes sure the value of the property is consistent with the purchase price? This is where the appraiser comes in. 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 professional Alabama licensed appraiser from Leland Baggett Real Estate Appraisers will ensure you as an interested party are informed.
The inspection is where an appraisal startsTo ascertain the true status of the property, it's our duty to first complete a thorough inspection. We must physically see aspects of the property, such as the number of bedrooms and bathrooms, the location, living areas, etc., to ensure they truly exist and are in the shape a typical person would expect them to be. To ensure the stated square footage has not been misrepresented and convey the layout of the house, the inspection often requires creating a sketch of the floor plan. Most importantly, the appraiser looks for any obvious amenities - or defects - that would have an impact on the value of the house.
Once the site has been inspected, we use two or three approaches when determining the value of the property: a sales comparison, a replacement cost calculation, and an income approach when rental properties are prevalent.
Cost ApproachThis is where we gather information on local construction costs, the cost of labor and other factors to ascertain how much it would cost to construct a property similar to the one being appraised. This estimate usually sets the upper limit on what a property would sell for. It's also the least used method.
Paired Sales AnalysisAppraisers are intimately familiar with the communities in which they work. We innately understand the value of particular features to the residents of that area. Then, the appraiser looks up recent transactions in the area and finds properties which are 'comparable' to the home being appraised. By assigning a dollar value to certain items such as square footage, extra bathrooms, hardwood floors, fireplaces or view lots (just to name a few), we add or subtract from each comparable's sales price so that they are more accurately in line with the features of subject property.
Valuation Using the Income ApproachA third way of valuing a property is sometimes used when an area has a reasonable number of rental properties. In this scenario, the amount of revenue the real estate yields is taken into consideration along with income produced by similar properties to determine the current value.
Putting It All TogetherAnalyzing the data from all approaches, the appraiser is then ready to put down an estimated market value for the property at hand. The estimate of value at the bottom of the appraisal report is not necessarily what's being paid for the property even though it is likely the best indication of a property's market value 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 often employed as a guideline for lenders who don't want to loan a buyer more money than the property would likely sell for in an open marketplace. At the end of the day: An appraiser from Leland Baggett Real Estate Appraisers will guarantee you discover the most accurate property value, so you can make the most informed real estate decisions.