What Are the Components of an Appraisal?
A home purchase can be the largest financial decision some of us may ever consider. Whether it's a main residence, an additional vacation property or an investment, purchasing real property is an involved financial transaction that requires multiple parties to pull it all off.
The majority of the people participating are very familiar. The most familiar person in the exchange is the real estate agent. Then, the mortgage company provides the money needed to fund the deal. And the title company ensures that all requirements of the sale are completed and that a clear title transfers from the seller to the purchaser.
So, what party makes sure the real estate is worth the purchase price? In comes the appraiser. We provide an unbiased opinion of what a buyer could 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 Gregory James Company, Inc. will ensure, you as an interested party, are informed.
Appraisals begin with the property inspection
To ascertain the true status of the property, it's our duty to first complete a thorough inspection. We must see features hands on, 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 buyer would expect them to be. The inspection often includes a sketch of the floorplan, ensuring the square footage is proper and illustrating the layout of the property. Most importantly, the appraiser looks for any obvious features - or defects - that would affect the value of the house.
Back at the office, an appraiser uses two or three approaches to determining the value of the property: paired sales analysis and, in the case of a rental property, an income approach.
This is where we analyze information on local construction costs, the cost of labor and other factors to figure out how much it would cost to build a property similar to the one being appraised. This value often sets the upper limit on what a property would sell for. It's also the least used predictor of value.
Paired Sales Analysis
Appraisers get to know the subdivisions in which they work. They thoroughly understand the value of specific features to the homeowners of that area. Then, the appraiser researches recent transactions in the neighborhood and finds properties which are 'comparable' to the subject at hand. By assigning a dollar value to certain items such as fireplaces, room layout, appliance upgrades, extra bathrooms or bedrooms, or quality of construction, we adjust the comparable properties so that they are more accurately in line with the features of subject property.
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 Atlanta and Polk, Gregory James Company, Inc. is your local authority. The sales comparison approach to value is commonly awarded the most consideration when an appraisal is for a real estate purchase.
Valuation Using the Income Approach
A third method of valuing real estate is sometimes used when a neighborhood has a reasonable number of rental properties. In this situation, the amount of revenue the real estate yields is factored in with other rents in the area for comparable properties to derive the current value.
Putting It All Together
Analyzing the data from all approaches, the appraiser is then ready to document an estimated market value for the property in question. The estimate of value on the appraisal report is not necessarily the final sales price even though it is likely the best indication of what a property is worth. There are always mitigating factors such as the seller's desire to get out of the property, urgency or 'bidding wars' that may adjust the final price up or down. Regardless, the appraised value is often 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 put the property on the market again. Here's what it all boils down to, an appraiser from Gregory James Company, Inc. will guarantee you get the most fair and balanced property value, so you can make the most informed real estate decisions.
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