Understanding the Appraisal Process
Their home's purchase can be the most important financial decision most of us will ever consider. Whether it's a main residence, an additional vacation home or an investment, the purchase of real property is an involved transaction that requires multiple people working in concert to make it all happen.
You're probably familiar with the parties taking part in the transaction. The real estate agent is the most known face in the transaction. Next, the lender provides the financial capital required to bankroll the exchange. The title company sees to it that all details of the exchange are completed and that a clear title transfers from the seller to the purchaser.
So, who makes sure the property is worth the purchase price? In comes the appraiser. 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 Advantage Appraisal Inc. (207) 794-2018 will ensure, you as an interested party, are informed.
The inspection is where an appraisal begins
To determine the true status of the property, it's our responsibility to first perform a thorough inspection. We must actually see features, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they indeed are there and are in the shape a typical 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, we identify any obvious features - or defects - that would have an impact on the value of the property.
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, the appraiser gathers information on local building costs, labor rates and other elements 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. The cost approach is also the least used predictor of value.
Analyzing Comparable Sales
Appraisers become very familiar with the neighborhoods in which they appraise. They thoroughly 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 real estate at hand. By assigning a dollar value to certain items such as remodeled rooms, types of flooring, energy efficient items, patios and porches, or additional storage space, we adjust the comparable properties so that they more accurately match the features of subject.
An opinion of what the subject could sell for can only be determined once all differences between the comps and the subject have been evaluated. At Advantage Appraisal Inc. (207) 794-2018, we are experts in knowing the value of particular items in Lincoln and Penobscot County neighborhoods. This approach to value is usually awarded the most weight 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 method of valuing a property. In this situation, the amount of revenue the real estate generates is taken into consideration along with income produced by nearby properties to give an indicator of the current value.
Putting It All Together
Examining the data from all approaches, the appraiser is then ready to state an estimated market value for the subject property. The estimate of value at the bottom of the appraisal report is not necessarily what's being paid for the property even though it is likely the best indication of what a property is worth. 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 often used as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. It all comes down to this, an appraiser from Advantage Appraisal Inc. (207) 794-2018 will help you discover the most fair and balanced property value, so you can make wise real estate decisions.