What Goes Into an Appraisal?
Acquiring a home is the biggest transaction many people might ever encounter. It doesn't matter if a main residence, a seasonal vacation home or one of many rentals, the purchase of real property is a detailed financial transaction that requires multiple parties to make it all happen.
It's likely you are familiar with the parties having a role in the transaction. The most familiar face in the exchange is the real estate agent. Next, the bank provides the money required to fund the deal. And ensuring all requirements of the exchange 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 property is worth 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 Appraisal West will ensure, you as an interested party, are informed.
Appraisals start with the property inspection
To ascertain the true status of the property, it's our duty to first conduct a thorough inspection. We must see features hands on, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they truly exist and are in the shape a reasonable person would expect them to be. To ensure the stated size of the property has not been misrepresented and document the layout of the property, the inspection often requires creating a sketch of the floorplan. Most importantly, we identify any obvious features - or defects - that would have an impact on the value of the house.
Back at the office, we use 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.
This is where we pull information on local building costs, labor rates and other factors to ascertain how much it would cost to replace the property being appraised. This figure usually sets the upper limit on what a property would sell for. The cost approach is also the least used predictor of value.
Analyzing Comparable Sales
Appraisers are intimately familiar with the neighborhoods in which they work. They innately understand the value of certain features to the people of that area. Then, the appraiser looks up recent sales in the area and finds properties which are 'comparable' to the subject being appraised. By assigning a dollar value to certain items such as upgraded appliances, extra bathrooms, additional living area, quality of construction, lot size, we adjust the comparable properties so that they more accurately match the features of subject.
An opinion of what the subject might sell for can only be determined once all differences between the comps and the subject have been evaluated. At Appraisal West, we are experts in knowing the worth of real estate features in Kelowna and none County neighborhoods. This approach to value is typically awarded the most importance when an appraisal is for a home sale.
Valuation Using the Income Approach
A third way of valuing approach to value is sometimes employed when a neighborhood has a reasonable number of renter occupied properties. In this situation, the amount of income the property produces is factored in with other rents in the area for comparable properties to give an indicator of the current value.
The Bottom Line
Analyzing the data from all applicable 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 most accurate indication of what a property is worth, it may not be the final sales price. There are always mitigating factors such as the seller's desire to get out of the property, urgency or 'bidding wars' that may adjust the final price up or down. Regardless, the appraised value is typically employed 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 Appraisal West will help you get the most accurate property value, so you can make wise real estate decisions.