Real Estate Appraisals: A Primer
A home purchase is the biggest financial decision many of us could ever make. It doesn't matter if where you raise your family, an additional vacation property or an investment, the purchase of real property is an involved financial transaction that requires multiple people working in concert to pull it all off.
Most people are familiar with the parties having a role in the transaction. The most familiar entity in the transaction is the real estate agent. Then, the lender provides the financial capital necessary to finance the deal. And ensuring all aspects of the sale are completed and that the title is clear to pass from the seller to the buyer is the title company.
So, who's responsible for making sure the value of the property is consistent with 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 Gold Coast Appraisal Group LLC will ensure, you as an interested party, are informed.
Appraisals start with the home inspection
To ascertain an accurate status of the property, it's our duty to first conduct a thorough inspection. We must see aspects of the property hands on, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they indeed exist and are in the condition a reasonable buyer would expect them to be. The inspection often includes a sketch of the house, ensuring the square footage is proper and illustrating the layout of the property. Most importantly, we look for any obvious features - or defects - that would have an impact on the value of the house.
Following the inspection, an appraiser uses two or three approaches to determining the value of the property: a sales comparison, a replacement cost calculation, and an income approach when rental properties are prevalent.
This is where the appraiser gathers information on local building costs, the cost of labor and other elements to figure out how much it would cost to construct a property similar to the one being appraised. This figure commonly sets the upper limit on what a property would sell for. It's also the least used predictor of value.
Analyzing Comparable Sales
Appraisers are intimately familiar with the neighborhoods in which they appraise. They thoroughly understand the value of specific features to the homeowners of that area. Then, the appraiser looks up recent transactions in the area and finds properties which are 'comparable' to the real estate in question. By assigning a dollar value to certain items such as remodeled rooms, types of flooring, energy efficient items, patios and porches, or extra storage space, we adjust the comparable properties so that they are more accurately in line with the features of subject property.
A true estimate of what the subject might sell for can only be determined once all differences between the comps and the subject have been evaluated. At Gold Coast Appraisal Group LLC, we are an authority when it comes to knowing the value of real estate features in Cliffside Park and Bergen County neighborhoods. This approach to value is usually awarded the most consideration when an appraisal is for a real estate exchange.
Valuation Using the Income Approach
In the case of income producing properties - rental houses for example - we may use a third way of valuing a property. In this case, the amount of revenue the property generates is factored in with other rents in the area for comparable properties to derive the current value.
Coming Up With The Final Value
Combining information from all approaches, the appraiser is then ready to document an estimated market value for the property in question. The estimate of value at the bottom of the appraisal report is not always the final sales price even though it is likely the best indication of what a property is worth. Depending on the specific circumstances 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 employed as a guideline for lenders who don't want to loan a buyer more money than they could recover in the event they had to sell the property again. The bottom line is, an appraiser from Gold Coast Appraisal Group LLC will guarantee you discover the most accurate property value, so you can make profitable real estate decisions.