An Overview of the Appraisal Process
A home purchase can be the most serious financial decision we may ever make. It doesn't matter if it's a primary residence, a seasonal vacation home or an investment, purchasing real property is a complex financial transaction that requires multiple people working in concert to make it all happen.
The real estate agent is the most familiar person in the transaction. The bank provides the money needed to finance the deal. The title company ensures that all aspects of the exchange are completed and that the title is clear to pass to the buyer from the seller.
So, what party makes sure the value of the property is consistent with the amount being paid? This is where you meet the appraiser. I provide an unbiased opinion of what a buyer could expect to pay — or a seller receive — for a parcel of real estate, where both buyer and seller are informed parties. As a certified residential appraiser licensed in the State of South Dakota, Kathy Quinlivan from Q Appraisals will ensure, you as an interested party, are informed.
The inspection is where an appraisal starts
To determine the true status of the property, it's my responsibility to first complete a thorough inspection. I must see features hands on, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they truly are there and are in the condition a typical person would expect them to be. To make sure the stated size of the property has not been misrepresented and convey the layout of the house, the inspection often entails creating a sketch of the floorplan. Most importantly, the appraiser looks for any obvious features - or defects - that would have an impact on the value of the property.
Back at the office, I use two or three approaches to determining the value of real property: a sales comparison, a replacement cost calculation, and an income approach when rental properties are prevalent.
Here, I gather information on local construction costs, the cost of labor and other factors to figure out how much it would cost to construct a property comparable to the one being appraised. This figure usually sets the maximum a property would sell for. The cost approach is the least used method, but is commonly used for new construction.
Paired Sales Analysis
Appraisers can tell you a lot about the communities in which they work. They thoroughly understand the value of certain features to the homeowners of that area. The appraiser researches recent sales in the vicinity and finds properties which are 'comparable' to the subject being appraised. By assigning a dollar value to certain items such as square footage, extra bathrooms, hardwood floors, fireplaces or view lots (just to name a few), the appraiser will add or subtract from each comparable's sales price so that they more accurately match the features of subject property.
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. When it comes to valuing features of homes in Yankton and southeastern South Dakota, Q Appraisals is your local authority. The sales comparison approach to value is typically awarded the most weight when an appraisal is for a home sale.
Valuation Using the Income Approach
In the case of income producing properties - rental houses for example - I may use an additional approach to value. In this situation, the amount of revenue the real estate yields is taken into consideration along with income produced by nearby properties to determine the current value.
Arriving at a Value Conclusion
Examining the data from all approaches, the appraiser is then ready to document an estimated market value for the property in question. It is important to note that while this amount is probably the best indication of what a property is worth, it may not be the final sales price. 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. It all comes down to this, an appraiser from Q Appraisals will help you get the most fair and balanced property value, so you can make wise real estate decisions.