What Goes Into an Appraisal?
Purchasing a home is the biggest investment some could ever make. It doesn't matter if a main residence, a second vacation property or a rental fixer upper, the purchase of real property is an involved financial transaction that requires multiple parties to see it through.
Practically all the participants are very familiar. The most known face in the transaction is the real estate agent. Then, the lender provides the money needed to finance the deal. And the title company ensures that all requirements of the exchange are completed and that the title is clear to pass to the buyer from the seller.
So, what party makes sure the value of the property is consistent with 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 Frigoletto & Associates Inc. 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 perform a thorough inspection. We must see features first hand, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they really are there 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 correct and illustrating the layout of the property. Most importantly, we look for any obvious features - 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: paired sales analysis and, in the case of a rental property, an income approach.
This is where we use information on local building costs, the cost of labor and other elements to derive how much it would cost to construct a property similar to the one being appraised. This value often sets the maximum on what a property would sell for. The cost approach is also the least used predictor of value.
Analyzing Comparable Sales
Appraisers are intimately familiar with the subdivisions in which they appraise. They innately understand the value of specific features to the homeowners of that area. Then, the appraiser researches recent transactions 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 square footage, extra bathrooms, hardwood floors, fireplaces or view lots (just to name a few), we adjust the comparable properties so that they are more accurately in line with the features of subject property.
Once all necessary adjustments have been made, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At Frigoletto & Associates Inc., we are experts in knowing the worth of particular items in Leominster and Worcester County neighborhoods. This approach to value is commonly given the most weight 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 approach to value. In this scenario, the amount of income the property generates is taken into consideration along with other rents in the area for comparable properties to derive the current value.
Coming Up With The Final Value
Combining information from all applicable 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 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 seller motivation, urgency or 'bidding wars' that may adjust an offer or listing 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. It all comes down to this, an appraiser from Frigoletto & Associates Inc. will help you discover the most fair and balanced property value, so you can make wise real estate decisions.