Understanding the Appraisal Process
A home purchase is the biggest financial decision most might ever encounter. Whether it's where you raise your family, a second vacation home or an investment, purchasing real property is a detailed financial transaction that requires multiple people working in concert to see it through.
The majority of the participants are quite familiar. The most recognizable person in the transaction is the real estate agent. Next, the mortgage company provides the money necessary to bankroll the transaction. And ensuring all details of the transaction are completed and that the title is clear to pass from the seller to the buyer is the title company.
So, what party makes sure the value of the property is in line with the amount being paid? In comes the appraiser. We provide an unbiased estimate 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 Gregory James Company, Inc. will ensure, you as an interested party, are informed.
The inspection is where an appraisal starts
Our first responsibility at Gregory James Company, Inc. is to inspect the property to determine its true status. 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 typical buyer would expect them to be. To ensure the stated size of the property has not been misrepresented and document the layout of the house, the inspection often entails creating a sketch of the floorplan. Most importantly, the appraiser identifies any obvious amenities - or defects - that would affect the value of the property.
Once the site has been inspected, an appraiser uses 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 we use information on local construction costs, labor rates and other factors to derive how much it would cost to build a property nearly identical to the one being appraised. This estimate usually sets the maximum on what a property would sell for. It's also the least used method.
Appraisers get to know the subdivisions in which they work. They innately understand the value of particular features to the homeowners of that area. Then, the appraiser researches recent transactions in the neighborhood and finds properties which are 'comparable' to the subject being appraised. Using knowledge of the value of certain items such as upgraded appliances, extra bathrooms, additional living area, quality of construction, lot size, we adjust the comparable properties so that they are more accurately in line with the features of subject property.
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 Gregory James Company, Inc., we are experts when it comes to knowing the worth of real estate features in Atlanta and Polk County neighborhoods. The sales comparison approach to value is most often awarded the most consideration when an appraisal is for a real estate sale.
Valuation Using the Income Approach
A third way of valuing a property is sometimes employed when an area has a reasonable number of renter occupied properties. In this case, the amount of income the property generates is taken into consideration along with income produced by similar properties to derive the current value.
The Bottom Line
Combining information from all approaches, the appraiser is then ready to put down an estimated market value for the property in question. Note: While the appraised value is probably the best indication of what a property 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'. 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 Gregory James Company, Inc. will help you get the most accurate property value, so you can make the most informed real estate decisions.
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