Real Estate Appraisals: A PrimerGetting a home can be the most significant investment most will ever consider. It doesn't matter if it's a main residence, a seasonal vacation property or one of many rentals, purchasing real property is a detailed financial transaction that requires multiple parties to see it through.
You're probably familiar with the parties having a role in the transaction. The most familiar face in the exchange is the real estate agent. Next, the lender provides the money needed to fund the transaction. The title company ensures that all requirements of the transaction are completed and that the title is clear to transfer from the seller to the purchaser.
So who's responsible for making sure the real estate is consistent with the amount being paid? In comes 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 professional Michigan licensed appraiser from AA Advanced Appraisals will ensure you as an interested party are informed.
Inspecting the subject propertyOur first task at AA Advanced Appraisals is to inspect the property to determine its true status. We must physically see features, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they truly are present and are in the shape a reasonable buyer would expect them to be. The inspection often includes a sketch of the house, ensuring the square footage is accurate and conveying the layout of the property. Most importantly, the appraiser looks for any obvious features - or defects - that would have an impact on the value of the house.
Next, after the inspection, an appraiser employs two or three approaches when determining the value of the property: sales comparison and, in the case of a rental property, an income approach.
Cost ApproachThis is where the appraiser analyzes information on local construction costs, labor rates and other factors to figure out how much it would cost to build a property nearly identical to the one being appraised. This value often sets the maximum on what a property would sell for. It's also the least used method.
Sales ComparisonAppraisers become very familiar with the communities in which they appraise. We innately understand the value of specific features to the people of that area. Then, the appraiser looks up recent sales in the area and finds properties which are 'comparable' to the real estate in question. Using knowledge of the value of certain items such as fireplaces, room layout, appliance upgrades, extra bathrooms or bedrooms, or quality of construction, we adjust the comparable properties so that they are more accurately in line with the features of subject.
Valuation Using the Income ApproachA third method of valuing approach to value is sometimes used when a neighborhood has a measurable number of renter occupied properties. In this scenario, the amount of income the property yields is factored in with income produced by similar properties to give an indicator of the current value.
Putting It All TogetherCombining information from all applicable approaches, the appraiser is then ready to document an estimated market value for the subject property. 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 could sell for in an open market. Depending on the individual 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 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 put the property on the market again. It all comes down to this: An appraiser from AA Advanced Appraisals will help you discover the most fair and balanced property value, so you can make the most informed real estate decisions.