Understanding the Appraisal Process
Buying a home can be the most important financial decision some of us could ever make. Whether it's where you raise your family, a second vacation home 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.
It's likely you are familiar with the parties having a role in the transaction. The most familiar face in the transaction is the real estate agent. Then, the mortgage company provides the financial capital required to fund the transaction. The title company ensures that all requirements of the exchange are completed and that a clear title transfers to the buyer from the seller.
So, what party makes sure the property is worth the purchase price? This is where the appraiser comes in. 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 Nordquist Appraisal LLC will ensure, you as an interested party, are informed.
Appraisals start with the inspection
To ascertain the true status of the property, it's our duty to first complete a thorough inspection. We must actually see features, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they indeed are present and are in the condition a typical buyer would expect them to be. To ensure the stated size of the property has not been misrepresented and illustrate the layout of the property, the inspection often requires creating a sketch of the floorplan. Most importantly, the appraiser looks for any obvious amenities - or defects - that would affect the value of the house.
Once the site has been inspected, an appraiser uses 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.
This is where the appraiser pulls information on local building costs, the cost of labor and other elements to calculate how much it would cost to replace the property being appraised. This value usually sets the upper limit on what a property would sell for. It's also the least used method.
Analyzing Comparable Sales
Appraisers become very familiar with the neighborhoods in which they appraise. They thoroughly understand the value of certain features to the homeowners of that area. Then, the appraiser looks up recent sales in the area and finds properties which are 'comparable' to the home being appraised. By assigning a dollar value to certain items such as remodeled rooms, types of flooring, energy efficient items, patios and porches, or additional storage space, 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 knowing the true worth of features of homes in Pittsburgh and Allegheny, Nordquist Appraisal LLC is your local authority. The sales comparison approach to value is usually given the most consideration when an appraisal is for a home purchase.
Valuation Using the Income Approach
In the case of income producing properties - rental houses for example - we may use an additional method of valuing a property. In this scenario, the amount of revenue the property generates is factored in with income produced by comparable properties to derive the current value.
The Bottom Line
Examining the data from all applicable approaches, the appraiser is then ready to state an estimated market value for the property in question. The estimate of value at the bottom of the appraisal report is not always 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 typically used 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 Nordquist Appraisal LLC will guarantee you discover the most fair and balanced property value, so you can make wise real estate decisions.
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