Real Estate Appraisals: A Primer
Buying real estate is the biggest transaction some people could ever make. Whether it's where you raise your family, a second vacation home or a rental fixer upper, purchasing real property is a detailed financial transaction that requires multiple parties to make it all happen.
Practically all the people participating are very familiar. The real estate agent is the most known face in the exchange. Then, the bank provides the financial capital necessary to fund the exchange. And ensuring all aspects of the exchange are completed and that the title is clear to pass to the buyer from the seller is the title company.
So, what party makes sure the real estate is worth the purchase price? This is where you meet the appraiser. We provide an unbiased opinion 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 Sharon L. Bagby & Assoc. your Crystal Lake Appraisal Service will ensure, you as an interested party, are informed.
The inspection is where an appraisal begins
Our first task at Sharon L. Bagby & Assoc. your Crystal Lake Appraisal Service is to inspect the property to determine its true status. We must actually see aspects of the property, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they really 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 accurate and illustrating the layout of the property. Most importantly, we identify any obvious features - or defects - that would affect the value of the house.
Following the inspection, we use two or three approaches to determining the value of real property: paired sales analysis and, in the case of a rental property, an income approach.
Here, we pull information on local construction costs, labor rates and other factors to ascertain how much it would cost to replace the property being appraised. This figure commonly sets the upper limit on what a property would sell for. It's also the least used method.
Analyzing Comparable Sales
Appraisers can tell you a lot about the communities in which they work. They thoroughly understand the value of particular features to the people of that area. Then, the appraiser looks up recent sales in the vicinity and finds properties which are 'comparable' to the real estate at hand. By assigning a dollar value to certain items such as upgraded appliances, additional bathrooms, additional living area, quality of construction, lot size, we adjust the comparable properties so that they more accurately portray the features of subject.
In the end, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At Sharon L. Bagby & Assoc. your Crystal Lake Appraisal Service, we are experts in knowing the worth of particular items in Crystal Lake and McHenry County neighborhoods. The sales comparison approach to value is commonly given the most weight 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 - the appraiser may use a third method of valuing real estate. In this situation, the amount of revenue the property generates is taken into consideration along with other rents in the area for comparable properties to determine the current value.
The Bottom Line
Examining the data from all approaches, the appraiser is then ready to state an estimated market value for the property at hand. The estimate of value on the appraisal report is not necessarily the final sales price even though it is likely the best indication of what a property is worth. 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 typically 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 Sharon L. Bagby & Assoc. your Crystal Lake Appraisal Service will help you discover the most fair and balanced property value, so you can make the most informed real estate decisions.