What Goes Into an Appraisal?
Purchasing a house is the largest transaction many could ever make. Whether it's where you raise your family, a second vacation home or one of many rentals, purchasing real property is an involved financial transaction that requires multiple parties to see it through.
Most people are familiar with the parties having a role in the transaction. The most known face in the exchange is the real estate agent. Then, the mortgage company provides the money required to finance the exchange. And ensuring all details of the exchange are completed and that the title is clear to pass to the buyer from the seller is the title company.
So, who's responsible for making sure the property 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 Alaska Real Estate Appraisal will ensure, you as an interested party, are informed.
Appraisals begin with the home inspection
To ascertain the true status of the property, it's our responsibility to first conduct a thorough inspection. We must physically see aspects of the property, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they indeed exist and are in the shape a reasonable person would expect them to be. To ensure the stated size of the property is accurate and illustrate the layout of the house, the inspection often requires creating a sketch of the floorplan. Most importantly, we look for any obvious features - or defects - that would have an impact on the value of the house.
Once the site has been inspected, we use two or three approaches to determining the value of real property: sales comparison and, in the case of a rental property, an income approach.
This is where the appraiser gathers information on local building costs, the cost of labor and other elements to calculate how much it would cost to build a property comparable to the one being appraised. This estimate usually sets the upper limit on what a property would sell for. It's also the least used predictor of value.
Analyzing Comparable Sales
Appraisers become very familiar with the neighborhoods in which they appraise. They thoroughly understand the value of certain features to the people of that area. Then, the appraiser looks up recent sales in close proximity to the subject and finds properties which are 'comparable' to the home being appraised. Using knowledge of the value of certain items such as square footage, extra 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 are more accurately in line with the features of subject.
A valid estimate of what the subject might sell for can only be determined once all differences between the comps and the subject have been evaluated. At Alaska Real Estate Appraisal, we are experts in knowing the worth of particular items in Palmer and Matanuska Susitna County neighborhoods. The sales comparison approach to value is usually given the most consideration when an appraisal is for a real estate exchange.
Valuation Using the Income Approach
In the case of income producing properties - rental houses for example - we may use an additional approach to value. In this situation, the amount of income the real estate yields is factored in with other rents in the area for comparable properties to derive the current value.
Examining the data from all approaches, the appraiser is then ready to document an estimated market value for the property at hand. Note: While this amount is probably the best indication of what a house is worth, it may not be the price at which the property closes. It's not uncommon for prices to be driven up or down by extenuating circumstances like the motivation or urgency of a seller or 'bidding wars'. 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. The bottom line is, an appraiser from Alaska Real Estate Appraisal will help you discover the most accurate property value, so you can make profitable real estate decisions.