An Overview of the Appraisal Process
Your home purchase can be the largest financial decision you ever make. It does not matter if it's a main residence, a vacation home or rental fixer upper, the purchase of real property is an involved transaction that requires multiple people working together.
Inspecting the subject propertyAfter scheduling an appointment, a licensed certified appraiser from Sandcastle Management & Realty comes to the property to inspect and ascertain its true attributes. We must actually view the entire property to determine its features, such as the number of bedrooms and bathrooms, its location, the size of living areas, site, etc., to ensure they truly exist and are in a condition that a reasonable buyer and lender would expect. We measure the exterior "foot print" of the property making sure the stated square footage is accurate and sketch the layout of the floor plan of the house as the lender or intended user often requires. Most importantly, we identify any obvious features - or defects - that will affect the value and marketability of the property.
Following the physical inspection, the certified appraiser uses one to up to three different approaches to determine the value of the property: Sales Comparison Approach sometimes referred to as the Market Value Approach and, for income producing or rental property, the Income Approach.
The Cost ApproachIn this approach, we analyze local building costs, cost of labor and other factors to ascertain what it would cost to build a similar property that is comparable to the "subject", and then adding in the expense incurred to procure the land, site. The Cost Approach tends to set the upper limit on what a property would sell for as no reasonable buyer would pay more to buy an existing improvement than for what they could pay to build a new house of similar and like utility. This method is also the least used. However, this approach to value is very common when trying to determine a value for insurance purposes.
Analyzing Comparable SalesOur appraisers know the communities in which they work. We innately become aware of the value of specific features to residents in that area, including desirability of the schools, recreational amenities, ease to employment and shopping, etc. The appraiser researches recent sales in the neighborhood and chooses properties which are the best 'comparable' to the real estate being appraised. Using their experience and knowledge for value of certain items such as upgraded appliances, extra bathrooms, additional gross living area, quality of construction, lot size, etc., adjustments are made to the comparable properties so that they accurately portray the features of the subject.
Valuation Using the Income ApproachIn the case of income producing properties - rental houses or 2+ unit multi-family properties - the appraiser may use a third method of valuation. In this scenario, the amount of gross and net income the property produces is factored in with other comparable rents for comparable properties in the area to determine the current value via the Income Approach to value.
Coming Up With the Final Value
Analyzing the information from all approaches and weighting all approaches appropriately based on the subject's use, the appraiser is then ready to determine an opinion of market value for the subject property. Note: While the appraised value is the most accurate probable indication of what a property is worth, it is not necessarily the same as the actual sales price. There are always other external factors such as seller motivation, urgency or 'bidding wars' that can create adjustment to the final price, either up or down. Regardless, the appraised value is used as a guideline for lenders who need an independent opinion of value to help the them make a decision on the amount of the loan. The buyer also benefits from the appraisal as the buyer may have agreed to over "bid" due to external factors. The buyer can then renegotiate a new price, back-out entirely or continue with the transaction, just being aware that their motivation has caused them to pay above market for the real estate.
What it all comes down to: An appraiser from Sandcastle Management & Realty will help you attain the most fair property value, allowing you to make the most informed real estate decisions.