An Overview of the Appraisal Process
A home purchase can be the largest financial decision most could ever make. It doesn't matter if a main residence, an additional vacation property or one of many rentals, purchasing real property is a complex transaction that requires multiple parties to see it through.
Most of the participants are quite familiar. The most familiar face in the exchange is the real estate agent. Then, the bank provides the money required to bankroll the deal. And ensuring all areas of the sale are completed and that a clear title transfers from the seller to the purchaser is the title company.
So, what party is responsible for making sure the value of the property is in line 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 parcel of real estate, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Wood & Associates will ensure, you as an interested party, are informed.
The inspection is where an appraisal starts
Our first responsibility at Wood & Associates is to inspect the property to determine its true status. We must see features hands on, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they indeed exist and are in the shape a reasonable buyer would expect them to be. The inspection often includes a sketch of the floorplan, ensuring the square footage is proper and conveying the layout of the property. Most importantly, the appraiser identifies any obvious features - or defects - that would affect the value of the house.
After the inspection, we use 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.
Here, the appraiser pulls information on local construction costs, the cost of labor and other elements to calculate how much it would cost to build a property comparable to the one being appraised. This estimate commonly sets the maximum on what a property would sell for. The cost approach is also the least used predictor of value.
Analyzing Comparable Sales
Appraisers are intimately familiar with the communities in which they appraise. They thoroughly understand the value of particular features to the homeowners of that area. Then, the appraiser researches recent transactions in the neighborhood and finds properties which are 'comparable' to the property being appraised. Using knowledge of the value of certain items such as fireplaces, room layout, appliance upgrades, extra bathrooms or bedrooms, or quality of construction, we add or subtract from each comparable's sales price so that they are more accurately in line with the features of subject property.
Once all necessary adjustments have been made, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At Wood & Associates, we are an authority in knowing the value of real estate features in Knoxville and Loudon County neighborhoods. This approach to value is commonly given the most consideration when an appraisal is for a home exchange.
Valuation Using the Income Approach
In the case of income producing properties - rental houses for example - the appraiser may use an additional way of valuing a house. In this case, the amount of revenue the real estate yields is taken into consideration along with income produced by comparable properties to derive the current value.
Putting It All Together
Combining information from all approaches, the appraiser is then ready to document an estimated market value for the property at hand. Note: While the appraised value is probably the strongest indication of what a property is worth, it may not be the price at which the property closes. 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.Regardless, 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 the event they had to sell the property again. The bottom line is, an appraiser from Wood & Associates will guarantee you discover the most accurate property value, so you can make profitable real estate decisions.