What Is an Appraisal?
Getting a house can be the most important financial decision some might ever encounter. It doesn't matter if a primary residence, a seasonal vacation home or a rental fixer upper, purchasing real property is a complex transaction that requires multiple parties to pull it all off.
The majority of the participants are very familiar. The most known face in the transaction is the real estate agent. Next, the mortgage company provides the money required to bankroll the transaction. And the title company sees to it that all details of the exchange are completed and that the title is clear to pass to the buyer from the seller.
So, what party is responsible for making sure the real estate is worth the purchase price? This is where you meet the appraiser. We provide an unbiased opinion 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 W. Eric Howard & Associates will ensure, you as an interested party, are informed.
The inspection is where an appraisal starts
To ascertain an accurate status of the property, it's our duty to first complete a thorough inspection. We must physically view aspects of the property, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they indeed are there and are in the shape a reasonable buyer would expect them to be. The inspection often includes a sketch of the floorplan, ensuring the square footage is accurate and conveying the layout of the property. Most importantly, the appraiser looks for 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.
Here, we gather information on local building costs, labor rates and other factors to figure out how much it would cost to build a property similar to the one being appraised. This estimate often sets the upper limit on what a property would sell for. It's also the least used method.
Appraisers are intimately familiar with the subdivisions in which they appraise. They innately understand the value of particular 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 property being appraised. By assigning a dollar value to certain items such as square footage, additional bathrooms, hardwood floors, fireplaces or view lots (just to name a few), we add or subtract from each comparable's sales price so that they more accurately portray the features of subject.
An opinion of what the subject could sell for can only be determined once all differences between the comps and the subject have been evaluated. At W. Eric Howard & Associates, we are an authority when it comes to knowing the worth of particular items in Severn and Anne Arundel County neighborhoods. This approach to value is usually given the most importance when an appraisal is for a real estate purchase.
Valuation Using the Income Approach
In the case of income producing properties - rental houses for example - we may use an additional way of valuing real estate. In this scenario, the amount of income the real estate generates is taken into consideration along with income produced by comparable properties to derive the current value.
The Bottom Line
Combining information from all approaches, the appraiser is then ready to state 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 property is worth, it may not be the final sales price. Depending on the individual circumstances of the buyer or seller, their level of urgency or a buyer's desire for that exact property, the closing price of a home can always be driven up or down.But 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. The bottom line is, an appraiser from W. Eric Howard & Associates will help you discover the most fair and balanced property value, so you can make profitable real estate decisions.