Real Estate Appraisals: A Primer
A home purchase is the biggest investment some will ever encounter. Whether it's where you raise your family, an additional vacation property or one of many rentals, the purchase of real property is a complex financial transaction that requires multiple parties to make it all happen.
Most of the parties participating are very familiar. The most familiar entity in the transaction is the real estate agent. Then, the bank provides the money needed to finance the deal. The title company ensures that all areas of the sale are completed and that a clear title passes from the seller to the buyer.
So, who makes sure the real estate is worth the purchase price? 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 parcel of real estate, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from CCM Appraisal Systems, LLC will ensure, you as an interested party, are informed.
Appraisals begin with the inspection
To determine the true status of the property, it's our duty to first conduct a thorough inspection. We must actually view features, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they truly exist and are in the shape a typical person would expect them to be. The inspection often includes a sketch of the floorplan, ensuring the square footage is proper and conveying the layout of the property. Most importantly, the appraiser identifies any obvious amenities - or defects - that would affect 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, labor rates and other elements to figure out how much it would cost to replace the property being appraised. This figure often sets the upper limit on what a property would sell for. It's also the least used method.
Paired Sales Analysis
Appraisers get to know the subdivisions in which they appraise. They innately understand the value of certain features to the residents of that area. Then, the appraiser researches recent sales in close proximity to the subject and finds properties which are 'comparable' to the subject at hand. Using knowledge of the value of certain items such as fireplaces, room layout, appliance upgrades, extra bathrooms or bedrooms, or quality of construction, we add or subtract from each comparable's sales price so that they more accurately portray the features of subject property.
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. When it comes to valuing features of homes in Mounds View and Ramsey, CCM Appraisal Systems, LLC is second to none. This approach to value is usually given the most consideration when an appraisal is for a home exchange.
Valuation Using the Income Approach
A third way of valuing a property is sometimes applied when a neighborhood has a reasonable number of rental properties. In this situation, the amount of revenue the real estate generates is factored in with income produced by similar properties to give an indicator of the current value.
Putting It All Together
Combining information from all applicable approaches, the appraiser is then ready to document an estimated market value for the property in question. The estimate of value at the bottom of the appraisal report is not always what's being paid for the property even though it is likely the best indication of a property's valuePrices can always be driven up or down by extenuating circumstances like the motivation or urgency of a seller or 'bidding wars'. Regardless, the appraised value is often used as a guideline for lenders who don't want to loan a buyer more money than they could get back in the event they had to sell the property again. At the end of the day, an appraiser from CCM Appraisal Systems, LLC will guarantee you get the most fair and balanced property value, so you can make the most informed real estate decisions.