An Overview of the Appraisal ProcessA home purchase is the most significant financial decision most might ever make. Whether it's a main residence, a seasonal vacation home or a rental fixer upper, the purchase of real property is a complex financial transaction that requires multiple parties to pull it all off.
Practically all the participants are quite familiar. The most known person in the exchange is the real estate agent. Next, the lender provides the financial capital needed to finance the deal. The title company makes sure that all aspects of the transaction are completed and that a clear title transfers to the buyer from the seller.
So what party is responsible for making sure the value of the property is in line with the purchase price? In comes the appraiser. We 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. A professional Ohio licensed appraiser from James M. West, Inc. will ensure you as an interested party are informed.
The inspection is where an appraisal beginsOur first duty at James M. West, Inc. is to inspect the property to determine its true status. We must see aspects of the property hands on, such as the number of bedrooms and bathrooms, the location, living areas, etc., to ensure they really exist 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 proper and conveying the layout of the property. Most importantly, we look for any obvious amenities - or defects - that would affect the value of the house.
Once the site has been inspected, we use two or three approaches when determining the value of the property: a sales comparison, a replacement cost calculation, and an income approach when rental properties are prevalent.
Replacement CostHere, the appraiser analyzes information on local building costs, the cost of labor and other elements to derive how much it would cost to replace the property being appraised. This value often sets the maximum on what a property would sell for. It's also the least used predictor of value.
Paired Sales AnalysisAppraisers can tell you a lot about the subdivisions in which they appraise. We innately understand the value of particular features to the residents of that area. Then, the appraiser looks up recent sales in the area and finds properties which are 'comparable' to the subject being appraised. By assigning a dollar value to certain items such as square footage, additional bathrooms, hardwood floors, fireplaces or view lots (just to name a few), we add or subtract from each comparable's sales price so that they more accurately portray the features of subject.
Valuation Using the Income ApproachA third method of valuing approach to value is sometimes applied when a neighborhood has a reasonable number of renter occupied properties. In this situation, the amount of revenue the real estate produces is factored in with other rents in the area for comparable properties to give an indicator of the current value.
The Bottom LineAnalyzing the data from all approaches, the appraiser is then ready to stipulate an estimated market value for the subject property. Note: While the appraised value is probably the most reliable indication of what a property would sell for in an open market, it probably will not be the price at which the property closes. 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 typically employed as a guideline for lenders who don't want to loan a buyer more money than they could recover in case they had to sell the property again. At the end of the day: An appraiser from James M. West, Inc. will guarantee you get the most accurate property value, so you can make profitable real estate decisions.