What Goes Into an Appraisal?
Their home's purchase can be the most serious financial decision many of us may ever encounter. It doesn't matter if a primary residence, a seasonal vacation property or an investment, purchasing real property is a complex transaction that requires multiple people working in concert to see it through.
Most people are familiar with the parties having a role in the transaction. The real estate agent is the most recognizable person in the exchange. Next, the lender provides the financial capital needed to fund the transaction. The title company sees to it that all requirements of the transaction are completed and that a clear title passes to the buyer from the seller.
So, who's responsible for making sure the value of the property is in line with the purchase price? This is where you meet 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 licensed, certified, professional appraiser from Northern Arizona Appraisal, Inc. will ensure, you as an interested party, are informed.
Appraisals begin with the inspection
To ascertain the true status of the property, it's our responsibility to first perform a thorough inspection. We must actually 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 reasonable buyer would expect them to be. The inspection often includes a sketch of the floorplan, ensuring the square footage is accurate and conveying the layout of the property. Most importantly, the appraiser identifies any obvious features - or defects - that would affect the value of the property.
Back at the office, we use two or three approaches to determining the value of real property: a sales comparison, a replacement cost calculation, and an income approach when rental properties are prevalent.
This is where the appraiser gathers information on local building costs, labor rates and other elements to ascertain how much it would cost to replace the property being appraised. This figure usually sets the upper limit on what a property would sell for. It's also the least used predictor of value.
Appraisers get to know the communities in which they work. They innately understand the value of particular features to the residents of that area. Then, the appraiser researches recent transactions in close proximity to the subject and finds properties which are 'comparable' to the property at hand. Using knowledge of the value of certain items such as upgraded appliances, extra bathrooms, additional living area, quality of construction, lot size, we adjust the comparable properties so that they more accurately match the features of subject property.
In the end, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At Northern Arizona Appraisal, Inc., we are experts when it comes to knowing the worth of particular items in Phoenix and Maricopa County neighborhoods. This approach to value is most often awarded the most weight when an appraisal is for a real estate purchase.
Valuation Using the Income Approach
In the case of income producing properties - rental houses for example - we may use an additional approach to value. In this situation, the amount of revenue the real estate produces is taken into consideration along with other rents in the area for comparable properties to give an indicator of the current value.
Coming Up With The Final Value
Combining 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 necessarily what's being paid for the property even though it is likely the best indication of what a property is worth. Prices can always 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 get back in the event they had to sell the property again. It all comes down to this, an appraiser from Northern Arizona Appraisal, Inc. will help you attain the most fair and balanced property value, so you can make the most informed real estate decisions.