Real Property Appraisals: A Primer
Buying real estate can be the biggest transaction many of us could ever consider. It doesn't matter if a primary residence, a second vacation home or a rental fixer upper, purchasing real property is a complex transaction that requires multiple parties to make it all happen.
You're probably familiar with the parties having a role in the transaction. The most familiar face in the transaction is the real estate agent. Then, the lender provides the financial capital needed to finance the deal. And ensuring all details of the transaction are completed and that a clear title transfers to the buyer from the seller is the title company.
So, who's responsible for making sure the real estate is worth the amount being paid? This is where the appraiser comes in. 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 Personal Service Realty's Residential Valuation Group will ensure, you as an interested party, are informed.
Inspecting the subject property
To ascertain an accurate 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, amenities, etc., to ensure they indeed exist and are in the condition a reasonable buyer would expect them to be. The inspection often includes a sketch of the house, ensuring the square footage is correct and illustrating the layout of the property. Most importantly, we identify any obvious amenities - or defects - that would have an impact on the value of the property.
Back at the office, we use two or three approaches to determining the value of the property: sales comparison and, in the case of a rental property, an income approach.
This is where the appraiser gathers information on local construction costs, the cost of labor and other elements to determine how much it would cost to replace the property being appraised. This estimate commonly sets the maximum on what a property would sell for. It's also the least used method.
Paired Sales Analysis
Appraisers become very familiar with 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 sales in close proximity to the subject and finds properties which are 'comparable' to the real estate being appraised. 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 more accurately portray the features of subject.
An opinion of what the subject might sell for can only be determined once all differences between the comps and the subject have been evaluated. At Personal Service Realty's Residential Valuation Group, we are experts when it comes to knowing the worth of real estate features in Jacksonville and Duval County neighborhoods. This approach to value is usually given the most importance when an appraisal is for a home purchase.
Valuation Using the Income Approach
In the case of income producing properties - rental houses for example - the appraiser may use an additional method of valuing a house. In this case, the amount of revenue the real estate produces is factored in with other rents in the area for comparable properties to derive the current value.
The Bottom Line
Analyzing the data from all approaches, the appraiser is then ready to stipulate an estimated market value for the property at hand. 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 a property's valueThere 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 they could recover in the event they had to put the property on the market again. It all comes down to this, an appraiser from Personal Service Realty's Residential Valuation Group will help you get the most fair and balanced property value, so you can make the most informed real estate decisions.