What Goes Into an Appraisal?
Purchasing a home is the biggest financial decision many of us will ever consider. Whether it's where you raise your family, a seasonal vacation home or one of many rentals, the purchase of real property is a detailed transaction that requires multiple parties to make it all happen.
You're probably familiar with the parties taking part in the transaction. The real estate agent is the most familiar person in the transaction. Then, the bank provides the financial capital needed to fund the transaction. And ensuring all areas 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 value of the property is in line with the purchase price? In comes the appraiser. We provide an unbiased opinion of what a buyer might expect to pay — or a seller receive — for a property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Eric C. Hartzog, Appraiser, L.L.C. will ensure, you as an interested party, are informed.
The inspection is where an appraisal starts
To ascertain the true status of the property, it's our duty to first perform a thorough inspection. We must see aspects of the property hands on, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they really are present and are in the shape a reasonable person would expect them to be. To ensure the stated size of the property has not been misrepresented and convey the layout of the house, the inspection often entails creating a sketch of the floorplan. Most importantly, the appraiser looks for any obvious amenities - or defects - that would have an impact on the value of the house.
After the inspection, an appraiser uses 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.
Here, the appraiser analyzes information on local building costs, labor rates and other factors to ascertain how much it would cost to build a property nearly identical to the one being appraised. This value commonly sets the maximum on what a property would sell for. The cost approach is also the least used predictor of value.
Paired Sales Analysis
Appraisers get to know 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 close proximity to the subject and finds properties which are 'comparable' to the home in question. Using knowledge of the value of certain items such as remodeled rooms, types of flooring, energy efficient items, patios and porches, or additional storage space, we add or subtract from each comparable's sales price so that they more accurately portray the features of subject property.
Once all necessary adjustments have been made, 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 associating a value with features of homes in Baton Rouge and East Baton Rouge, Eric C. Hartzog, Appraiser, L.L.C. can't be beat. This approach to value is usually awarded the most consideration when an appraisal is for a real estate exchange.
Valuation Using the Income Approach
A third method of valuing a property is sometimes employed when a neighborhood has a measurable number of renter occupied properties. In this situation, the amount of income the real estate produces is taken into consideration along with other rents in the area for comparable properties to derive the current value.
Putting It All Together
Analyzing the data from all applicable approaches, the appraiser is then ready to document an estimated market value for the property in question. Note: While this amount is probably the best indication of what a property is worth, it may 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 an offer or listing price up or down. Regardless, the appraised value is often used as a guideline for lenders who don't want to loan a buyer more money than they could recover in the event they had to sell the property again. It all comes down to this, an appraiser from Eric C. Hartzog, Appraiser, L.L.C. will help you attain the most accurate property value, so you can make wise real estate decisions.