An Overview of the Appraisal ProcessA home purchase is the most serious transaction some people may ever make. Whether it's a main residence, a second vacation home or a rental fixer upper, purchasing real property is an involved transaction that requires multiple people working in concert to see it through.
Most of the participants are quite familiar. The most known entity in the exchange is the real estate agent. Then, the bank provides the financial capital necessary to bankroll the deal. The title company ensures that all aspects of the exchange are completed and that the title is clear to transfer to the buyer from the seller.
So what party makes sure the real estate is consistent with the amount being paid? In comes the appraiser. We provide an unbiased opinion 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 Raleigh-Durham Appraisals will ensure you as an interested party are informed.
The inspection is where an appraisal startsOur first duty at Raleigh-Durham Appraisals is to inspect the property to determine its true status. 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 really exist and are in the shape a typical buyer would expect them to be. To make sure the stated square footage is accurate and describe the layout of the house, the inspection often includes 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 property.
After the inspection, we use two or three approaches when determining the value of the property: paired sales analysis and, in the case of a rental property, an income approach.
Cost ApproachThis is where the appraiser pulls information on local construction costs, labor rates and other factors to ascertain how much it would cost to build a property comparable to the one 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.
Sales ComparisonAppraisers can tell you a lot about the subdivisions in which they appraise. We innately understand the value of particular features to the people of that area. Then, the appraiser researches recent sales in close proximity to the subject and finds properties which are 'comparable' to the property being appraised. Using knowledge of the value of 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 more accurately match the features of subject property.
Valuation Using the Income ApproachIn the case of income producing properties - rental houses for example - we may use a third approach to value. In this scenario, the amount of revenue the real estate generates is factored in with other rents in the area for comparable properties to give an indicator of the current value.
ReconciliationCombining information from all approaches, the appraiser is then ready to stipulate an estimated market value for the subject property. 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. There are always mitigating factors such as seller motivation, urgency or 'bidding wars' that may adjust the final price up or down. But the appraised value is typically used as a guideline for lenders who don't want to loan a buyer more money than they could get back in case they had to sell the property again. It all comes down to this: An appraiser from Raleigh-Durham Appraisals will guarantee you discover the most accurate property value, so you can make profitable real estate decisions.