Real Estate Appraisals: A PrimerOne's home purchase can be the biggest financial decision most of us will ever consider. It doesn't matter if it's where you raise your family, a seasonal vacation property or an investment, the purchase of real property is an involved financial transaction that requires multiple people working in concert to make it all happen.
Practically all the people involved are very familiar. The most recognizable face in the transaction is the real estate agent. Then, the mortgage company provides the financial capital required to finance the exchange. The title company ensures that all requirements of the sale are completed and that the title is clear to pass from the seller to the purchaser.
So what party is responsible for making sure the value of the real estate is consistent with the purchase price? In comes the appraiser. We provide an unbiased estimate of what a buyer might expect to pay - or a seller receive - for a parcel of real estate, where both buyer and seller are informed parties. A professional Utah licensed appraiser from Liberty Appraisal Group, Inc. will ensure you as an interested party are informed.
Appraisals start with the property inspectionTo determine the true status of the property, it's our duty to first complete a thorough inspection. We must physically see aspects of the property, such as the number of bedrooms and bathrooms, the location, living areas, etc., to ensure they really are present 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 illustrate the layout of the property, the inspection often includes creating a sketch of the floor plan. Most importantly, we identify any obvious features - or defects - that would affect the value of the property.
Next, after the inspection, an appraiser employs two or three approaches when determining the value of real property: sales comparison and, in the case of a rental property, an income approach.
Replacement CostThis is where the appraiser gathers information on local construction costs, labor rates and other elements to determine how much it would cost to construct a property comparable to the one being appraised. This figure usually sets the maximum on what a property would sell for. It's also the least used method.
Analyzing Comparable SalesAppraisers become very familiar with the neighborhoods in which they work. We innately understand the value of certain features to the residents of that area. Then, the appraiser researches recent sales in close proximity to the subject and finds properties which are 'comparable' to the property being appraised. By assigning a dollar value to certain items such as fireplaces, room layout, appliance upgrades, additional bathrooms or bedrooms, or quality of construction, we add or subtract from each comparable's sales price so that they are more accurately in line with the features of subject property.
Valuation Using the Income ApproachIn the case of income producing properties - rental houses for example - the appraiser may use an additional way of valuing real estate. In this situation, the amount of revenue the property generates is factored in with other rents in the area for comparable properties to derive the current value.
Arriving at a Value ConclusionCombining information from all approaches, the appraiser is then ready to put down an estimated market value for the subject property. The estimate of value at the bottom of the appraisal report is not always the final sales price even though it is likely the best indication of what a property could sell for in an open market. It's not uncommon for prices to be driven up or down by extenuating circumstances like the motivation or urgency of a seller or 'bidding wars'. 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 put the property on the market again. At the end of the day: An appraiser from Liberty Appraisal Group, Inc. will guarantee you discover the most accurate property value, so you can make profitable real estate decisions.