Understanding the Appraisal ProcessBuying a house can be the most important financial decision some people might ever consider. Whether it's a primary residence, an additional vacation home or one of many rentals, the purchase of real property is a complex financial transaction that requires multiple people working in concert to see it through.
Practically all the people participating are quite familiar. The real estate agent is the most familiar person in the exchange. Then, the lender provides the financial capital required to bankroll the transaction. The title company ensures that all details of the transaction are completed and that the title is clear to pass to the buyer from the seller.
So who's responsible for making sure the property is consistent with the purchase price? This is where the appraiser comes in. We provide an unbiased estimate 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 professional North Carolina licensed appraiser from Johnny Woody Appraisals will ensure you as an interested party are informed.
Appraisals start with the property inspectionTo determine an accurate status of the property, it's our responsibility to first complete a thorough inspection. We must see features first hand, 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 reasonable person would expect them to be. To ensure the stated square footage is accurate and illustrate the layout of the home, the inspection often requires creating a sketch of the floor plan. Most importantly, the appraiser identifies any obvious features - or defects - that would have an impact on the value of the house.
Next, after the inspection, we use two or three approaches when determining the value of real property: sales comparison and, in the case of a rental property, an income approach.
Cost ApproachThis is where we pull information on local construction costs, the cost of labor and other elements to ascertain how much it would cost to replace the property being appraised. This estimate often sets the upper limit on what a property would sell for. The cost approach is also the least used method.
Paired Sales AnalysisAppraisers are intimately familiar with the subdivisions in which they work. We innately understand the value of particular features to the homeowners of that area. Then, the appraiser researches recent sales in the vicinity and finds properties which are 'comparable' to the property being appraised. By assigning a dollar value to certain items such as upgraded appliances, extra bathrooms, an additional living area, quality of construction, lot size, we adjust the comparable properties so that they are more accurately in line with the features of subject.
Valuation Using the Income ApproachA third way of valuing a house is sometimes employed when a neighborhood has a reasonable number of renter occupied properties. In this scenario, the amount of revenue the property yields is factored in with income produced by nearby properties to determine the current value.
ReconciliationCombining information from all approaches, the appraiser is then ready to stipulate an estimated market value for the property at hand. 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 could sell for in an open market. Prices can always be driven up or down by extenuating circumstances like the motivation or urgency of a seller or 'bidding wars'. Regardless, 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. Here's what it all boils down to: An appraiser from Johnny Woody Appraisals will help you attain the most accurate property value, so you can make wise real estate decisions.