What Are the Components of an Appraisal?
Purchasing a house is the most serious investment some may ever encounter. It doesn't matter if where you raise your family, a seasonal vacation home or a rental fixer upper, purchasing real property is a detailed transaction that requires multiple people working in concert to pull it all off.
Practically all the parties involved are quite familiar. The real estate agent is the most recognizable person in the exchange. Next, the lender provides the financial capital required to finance the exchange. And ensuring all aspects of the sale are completed and that a clear title transfers from the seller to the buyer is the title company.
So, what party is responsible for making sure the value of the property is in line with the amount being paid? 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 Mannion Appraisals will ensure, you as an interested party, are informed.
The inspection is where an appraisal begins
To ascertain an accurate status of the property, it's our responsibility to first complete a thorough inspection. We must physically view aspects of the property, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they really exist and are in the condition a typical person would expect them to be. To make sure the stated square footage is accurate and convey the layout of the home, the inspection often includes creating a sketch of the floorplan. Most importantly, we look for any obvious amenities - or defects - that would have an impact on the value of the house.
After the inspection, an appraiser uses two or three approaches to determining the value of real property: a sales comparison, a replacement cost calculation, and an income approach when rental properties are prevalent.
Here, we pull information on local construction costs, the cost of labor and other elements to calculate how much it would cost to construct a property nearly identical to the one being appraised. This estimate usually sets the upper limit on what a property would sell for. The cost approach is also the least used method.
Analyzing Comparable Sales
Appraisers become very familiar with the communities in which they appraise. They innately understand the value of particular features to the people of that area. Then, the appraiser researches recent sales in close proximity to the subject and finds properties which are 'comparable' to the subject in question. 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 more accurately portray the features of subject.
A true estimate of what the subject could sell for can only be determined once all differences between the comps and the subject have been evaluated. At Mannion Appraisals, we are experts in knowing the value of particular items in Oak Lawn and Cook County neighborhoods. The sales comparison approach to value is commonly awarded the most weight when an appraisal is for a home exchange.
Valuation Using the Income Approach
A third way of valuing a property is sometimes employed when an area has a measurable number of rental properties. In this situation, the amount of revenue the property generates is taken into consideration along with income produced by comparable properties to derive the current value.
Putting It All Together
Analyzing the data from all applicable approaches, the appraiser is then ready to document an estimated market value for the property at hand. Note: While the appraised value is probably the most accurate 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 they could get back in case they had to put the property on the market again. It all comes down to this, an appraiser from Mannion Appraisals will help you discover the most accurate property value, so you can make profitable real estate decisions.