What Are the Parts of an Appraisal?
A home purchase can be the most important financial decision most might ever make. Whether it's a primary residence, an additional vacation home or a rental fixer upper, purchasing real property is a complex transaction that requires multiple parties to make it all happen.
Most of the participants are very familiar. The most recognizable person in the transaction is the real estate agent. Then, the lender provides the money needed to finance the exchange. And the title company ensures that all areas of the transaction are completed and that the title is clear to pass from the seller to the purchaser.
So, who's responsible for making sure the value of the property is consistent 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 property, 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.
Inspecting the subject property
Our first task at Gregory James Company, Inc. is to inspect the property to determine its true status. 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 make sure the stated size of the property has not been misrepresented and document the layout of the property, the inspection often includes creating a sketch of the floorplan. Most importantly, we look for any obvious features - or defects - that would affect the value of the property.
Following the inspection, we use two or three approaches to determining the value of the property: a paired sales analysis, a replacement cost calculation, and an income approach when rental properties are prevalent.
Here, the appraiser pulls information on local building costs, the cost of labor and other factors to calculate how much it would cost to construct a property nearly identical to the one being appraised. This figure commonly sets the upper limit on what a property would sell for. The cost approach is also the least used method.
Appraisers become very familiar with the communities in which they appraise. They innately understand the value of certain features to the residents of that area. Then, the appraiser looks up recent sales in close proximity to the subject and finds properties which are 'comparable' to the real estate at hand. By assigning a dollar value to certain items such as fireplaces, room layout, appliance upgrades, additional bathrooms or bedrooms, or quality of construction, we add or subtract from each comparable's sales price 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 Gregory James Company, Inc., we are experts when it comes to knowing the worth of particular items in Cedartown and Polk County neighborhoods. The sales comparison approach to value is typically given the most weight when an appraisal is for a home exchange.
Valuation Using the Income Approach
A third method of valuing real estate is sometimes employed when a neighborhood has a measurable number of rental properties. In this situation, the amount of income the property yields is factored in with income produced by similar properties to determine the current value.
Combining information from all approaches, the appraiser is then ready to state an estimated market value for the subject property. Note: While the appraised value is probably the most reliable indication of what a property is worth, it may not be the final sales price. There are always mitigating factors such as seller motivation, urgency or 'bidding wars' that may adjust the final 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 they could get back in case they had to sell the property again. It all comes down to this, an appraiser from Gregory James Company, Inc. will help you discover the most accurate property value, so you can make profitable real estate decisions.
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