Real Property Appraisals: A Primer
Purchasing real estate can be the biggest financial decision many of us might ever encounter. Whether it's where you raise your family, a seasonal vacation home or one of many rentals, purchasing real property is an involved financial transaction that requires multiple parties to make it all happen.
You're probably familiar with the parties having a role in the transaction. The real estate agent is the most recognizable person in the exchange. Then, the mortgage company provides the financial capital necessary to fund the deal. The title company makes sure that all details of the transaction are completed and that the title is clear to transfer to the buyer from the seller.
So, what party is responsible for making sure the property is worth the purchase price? In comes the appraiser. We provide an unbiased estimate of what a buyer might 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 Frigoletto & Associates Inc. will ensure, you as an interested party, are informed.
Appraisals begin with the inspection
Our first task at Frigoletto & Associates Inc. is to inspect the property to ascertain its true status. We must see aspects of the property hands on, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they indeed are there and are in the condition 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 home, the inspection often entails creating a sketch of the floorplan. Most importantly, the appraiser identifies any obvious amenities - or defects - that would affect the value of the property.
Back at the office, we use two or three approaches to determining the value of real property: sales comparison and, in the case of a rental property, an income approach.
Here, we pull information on local construction costs, labor rates and other factors to ascertain how much it would cost to construct a property comparable to the one being appraised. This estimate commonly sets the maximum on what a property would sell for. It's also the least used method.
Appraisers get to know the subdivisions in which they appraise. They thoroughly 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 property being appraised. By assigning a dollar value to certain items such as upgraded appliances, additional bathrooms, additional living area, quality of construction, lot size, we add or subtract from each comparable's sales price so that they are more accurately in line with 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 Frigoletto & Associates Inc., we are experts in knowing the worth of real estate features in Leominster and Worcester County neighborhoods. This approach to value is most often given the most consideration when an appraisal is for a home sale.
Valuation Using the Income Approach
A third way of valuing real estate is sometimes used when a neighborhood has a measurable number of rental properties. In this situation, the amount of income the real estate produces is taken into consideration along with other rents in the area for comparable properties to determine the current value.
Putting It All Together
Combining information from all approaches, the appraiser is then ready to state an estimated market value for the property at hand. It is important to note that while this amount is probably the most reliable indication of what a house is worth, it probably will 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 an offer or listing price up or down. But the appraised value is often used as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. It all comes down to this, an appraiser from Frigoletto & Associates Inc. will guarantee you get the most fair and balanced property value, so you can make the most informed real estate decisions.