Real Property Appraisals: A Primer
Their home's purchase can be the largest transaction many may ever make. It doesn't matter if a main residence, an additional vacation home or a rental fixer upper, the purchase of real property is a complex financial transaction that requires multiple people working in concert to make it all happen.
The majority of the parties participating are quite familiar. The real estate agent is the most familiar face in the exchange. Next, the mortgage company provides the money necessary to finance the deal. The title company ensures that all requirements of the transaction are completed and that a clear title passes from the seller to the buyer.
So, who makes sure the value of the real estate is in line with the amount being paid? This is where the appraiser comes in. We provide an unbiased estimate of what a buyer might expect to pay — or a seller receive — for a property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Elinor J. Richard will ensure, you as an interested party, are informed.
Inspecting the subject property
Our first responsibility at Elinor J. Richard is to inspect the property to determine its true status. We must actually view features, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they truly are there and are in the shape a typical person would expect them to be. To ensure the stated square footage has not been misrepresented and describe 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 affect the value of the property.
Next, after the inspection, an appraiser uses two or three approaches to determining the value of the property: paired sales analysis and, in the case of a rental property, an income approach.
This is where we pull information on local building costs, the cost of labor and other elements to ascertain how much it would cost to replace the property being appraised. This estimate commonly sets the maximum on what a property would sell for. It's also the least used method.
Appraisers become very familiar with the subdivisions in which they work. They innately understand the value of certain features to the residents of that area. Then, the appraiser looks up recent sales in the vicinity and finds properties which are 'comparable' to the home in question. By assigning a dollar value to certain items such as square footage, extra bathrooms, hardwood floors, fireplaces or view lots (just to name a few), we adjust the comparable properties so that they more accurately portray the features of subject.
In the end, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At Elinor J. Richard, we are experts in knowing the worth of real estate features in Pawtucket and Providence County neighborhoods. This approach to value is usually awarded 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 - the appraiser may use an additional approach to value. In this scenario, the amount of revenue the real estate generates is factored in with other rents in the area for comparable properties to determine the current value.
Combining information from all approaches, the appraiser is then ready to put down an estimated market value for the subject property. It is important to note that 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. Depending on the individual circumstances of the buyer or seller, their level of urgency or a buyer's desire for that exact property, the closing price of a home can always be driven up or down.But the appraised value is typically employed as a guideline for lenders who don't want to loan a buyer more money than they could recover in the event they had to sell the property again. At the end of the day, an appraiser from Elinor J. Richard will guarantee you discover the most accurate property value, so you can make wise real estate decisions.