![]() Making Sense of the Appraisal ProcessBuying real estate is the most important investment some people might ever consider. It doesn't matter if where you raise your family, an additional vacation property or a rental fixer upper, purchasing real property is a detailed financial transaction that requires multiple people working in concert to make it all happen. The majority of the participants are quite familiar. The most recognizable entity in the transaction is the real estate agent. Next, the lender provides the money required to finance the exchange. And ensuring all details of the exchange are completed and that a clear title transfers from the seller to the buyer is the title company. So, who's responsible for making sure the property is worth the amount being paid? This is where the appraiser comes in. 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 licensed, certified, professional appraiser from Horan & Company, LLC. will ensure, you as an interested party, are informed. The inspection is where an appraisal beginsTo ascertain an accurate status of the property, it's our duty to first conduct a thorough inspection. We must actually see aspects of the property, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they truly are there and are in the shape a typical person would expect them to be. To ensure the stated square footage has not been misrepresented and illustrate the layout of the home, the inspection often requires creating a sketch of the floorplan. Most importantly, we look for any obvious features - or defects - that would affect the value of the property. Once the site has been inspected, we use two or three approaches to determining the value of the property: a paired sales analysis, a replacement cost calculation, and an income approach when rental properties are prevalent. ![]() Cost ApproachThis is where we analyze information on local building costs, the cost of labor and other factors to derive how much it would cost to build a property comparable to the one being appraised. This figure usually sets the upper limit on what a property would sell for. The cost approach is also the least used predictor of value. ![]() Sales ComparisonAppraisers get to know the neighborhoods in which they work. They innately understand the value of certain features to the homeowners of that area. Then, the appraiser looks up recent sales in close proximity to the subject and finds properties which are 'comparable' to the home in question. By assigning a dollar value to certain items such as upgraded appliances, additional bathrooms, additional living area, quality of construction, lot size, we add or subtract from each comparable's sales price so that they more accurately match the features of subject.
After all differences have been accounted for, 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 putting a value on features of homes in Sitka and Sitka, Horan & Company, LLC. is your local authority. This approach to value is commonly awarded the most consideration when an appraisal is for a real estate purchase. Valuation Using the Income ApproachIn the case of income producing properties - rental houses for example - we may use a third way of valuing a property. In this situation, the amount of revenue the real estate generates is taken into consideration along with other rents in the area for comparable properties to derive the current value. ReconciliationCombining 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 what's being paid for the property even though it is likely the best indication of a property's valueThere are always mitigating factors such as seller motivation, urgency or 'bidding wars' that may adjust an offer or listing price up or down. But the appraised value is often employed as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. At the end of the day, an appraiser from Horan & Company, LLC. will guarantee you discover the most fair and balanced property value, so you can make the most informed real estate decisions. |