What Are the Parts of an Appraisal?
Getting a home is the most serious transaction most of us will ever make. Whether it's a main residence, an additional vacation home or a rental fixer upper, the purchase of real property is a complex transaction that requires multiple people working in concert to make it all happen.
The majority of the participants are very familiar. The most familiar face in the exchange is the real estate agent. Then, the mortgage company provides the financial capital necessary to finance the deal. And ensuring all details of the exchange are completed and that a clear title passes to the buyer from the seller is the title company.
So, what party makes sure the value of the property is in line with the purchase price? This is where you meet 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 MGK Properties will ensure, you as an interested party, are informed.
Inspecting the subject property
Our first responsibility at MGK Properties is to inspect the property to determine its true status. We must actually view aspects of the property, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they truly exist and are in the condition a reasonable buyer would expect them to be. To make sure the stated square footage is accurate and illustrate the layout of the property, the inspection often entails creating a sketch of the floorplan. Most importantly, the appraiser looks for any obvious features - or defects - that would affect the value of the house.
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.
Here, we use information on local construction costs, labor rates and other factors 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. The cost approach is also the least used predictor of value.
Appraisers can tell you a lot about the neighborhoods in which they work. They innately understand the value of certain features to the homeowners of that area. Then, the appraiser researches recent sales in the area and finds properties which are 'comparable' to the real estate at hand. Using knowledge of the value of certain items such as remodeled rooms, types of flooring, energy efficient items, patios and porches, or extra storage space, we adjust the comparable properties so that they more accurately match the features of subject.
A valid 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 MGK Properties, we are an authority in knowing the worth of particular items in Hemet and Riverside County neighborhoods. This approach to value is typically given the most weight when an appraisal is for a real estate purchase.
Valuation Using the Income Approach
A third method of valuing approach to value is sometimes applied when a neighborhood has a measurable number of rental properties. In this situation, the amount of revenue the real estate generates is factored in with other rents in the area for comparable properties to derive the current value.
The Bottom Line
Combining information from all applicable approaches, the appraiser is then ready to document an estimated market value for the property at hand. Note: While this amount is probably the most accurate indication of what a house is worth, it probably will 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. At the end of the day, an appraiser from MGK Properties will help you attain the most fair and balanced property value, so you can make profitable real estate decisions.