What Are the Components of an Appraisal?
Buying real estate is the largest transaction some people will ever make. It doesn't matter if a primary residence, a second vacation home or a rental fixer upper, the purchase of real property is an involved financial transaction that requires multiple parties to see it through.
You're probably familiar with the parties having a role in the transaction. The real estate agent is the most familiar entity in the exchange. Then, the mortgage company provides the financial capital required to fund the exchange. And the title company makes sure that all areas of the exchange are completed and that a clear title passes to the buyer from the seller.
So, what party makes sure the value of the real estate is consistent with the amount being paid? This is where the appraiser comes in. 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 licensed, certified, professional appraiser from MacBride Appraisal will ensure, you as an interested party, are informed.
The inspection is where an appraisal begins
Our first responsibility at MacBride Appraisal is to inspect the property to ascertain its true status. We must see features hands on, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they indeed exist and are in the shape a typical person would expect them to be. To make sure the stated size of the property is accurate and describe the layout of the home, the inspection often includes creating a sketch of the floorplan. Most importantly, the appraiser identifies any obvious features - or defects - that would have an impact on the value of the house.
Following the inspection, an appraiser uses 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 pulls information on local construction costs, the cost of labor and other elements to derive how much it would cost to construct a property nearly identical to the one being appraised. This value often sets the upper limit on what a property would sell for. It's also the least used method.
Appraisers are intimately familiar with the communities in which they work. They innately understand the value of specific features to the people of that area. Then, the appraiser researches recent transactions in the vicinity and finds properties which are 'comparable' to the subject in question. 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), we add or subtract from each comparable's sales price so that they more accurately portray the features of subject.
A true estimate of what the subject might sell for can only be determined once all differences between the comps and the subject have been evaluated. At MacBride Appraisal, we are an authority in knowing the value of particular items in Carlsbad and San Diego County neighborhoods. The sales comparison approach to value is commonly given the most importance when an appraisal is for a home exchange.
Valuation Using the Income Approach
A third way of valuing a property is sometimes used when a neighborhood has a measurable number of renter occupied properties. In this scenario, the amount of revenue the real estate generates is taken into consideration along with income produced by neighboring properties to determine the current value.
Coming Up With The Final Value
Combining information from all applicable approaches, the appraiser is then ready to state an estimated market value for the property at hand. It is important to note that while this amount is probably the strongest indication of what a house is worth, it probably will not be the price at which the property closes. 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 often used as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. Here's what it all boils down to, an appraiser from MacBride Appraisal will help you attain the most accurate property value, so you can make the most informed real estate decisions.