An Overview of the Appraisal Process
Acquiring a home can be the most important investment many of us could ever consider. It doesn't matter if where you raise your family, a seasonal vacation home or an investment, purchasing real property is a detailed transaction that requires multiple parties to make it all happen.
Most of the participants are quite familiar. The real estate agent is the most recognizable entity in the exchange. Next, the bank provides the financial capital required to bankroll the transaction. The title company makes sure that all requirements of the sale are completed and that a clear title transfers from the seller to the buyer.
So, who makes sure the real estate is worth the purchase price? In comes the appraiser. We provide an unbiased estimate of what a buyer could expect to pay — or a seller receive — for a property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Appraisals by Kana, LLC will ensure, you as an interested party, are informed.
Inspecting the subject property
To ascertain the true status of the property, it's our responsibility to first perform a thorough inspection. We must see aspects of the property first hand, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they truly are there and are in the shape a reasonable buyer would expect them to be. To ensure the stated size of the property is accurate and describe the layout of the property, the inspection often requires creating a sketch of the floorplan. Most importantly, we look for any obvious amenities - or defects - that would affect the value of the house.
After the inspection, we use two or three approaches to determining the value of real property: a paired sales analysis, a replacement cost calculation, and an income approach when rental properties are prevalent.
Here, the appraiser pulls information on local building costs, labor rates and other factors to derive how much it would cost to construct a property comparable to the one being appraised. This figure commonly sets the maximum on what a property would sell for. It's also the least used method.
Appraisers become very familiar with the neighborhoods in which they work. They innately understand the value of specific 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 subject in question. Using knowledge of the value of certain items such as fireplaces, room layout, appliance upgrades, extra 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.
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. At Appraisals by Kana, LLC, we are experts in knowing the value of real estate features in Lafayette and Lafayette County neighborhoods. This approach to value is most often given the most weight when an appraisal is for a real estate exchange.
Valuation Using the Income Approach
In the case of income producing properties - rental houses for example - we may use a third method of valuing a house. In this situation, the amount of revenue the property generates is factored in with income produced by nearby properties to determine the current value.
Examining the data from all approaches, the appraiser is then ready to put down an estimated market value for the subject property. It is important to note that while this amount is probably the most reliable indication of what a house is worth, it probably will not be the final sales price. There are always mitigating factors such as seller motivation, urgency or 'bidding wars' that may adjust the final price up or down. Regardless, the appraised value is typically 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 Appraisals by Kana, LLC will guarantee you attain the most accurate property value, so you can make the most informed real estate decisions.