What Are the Components of an Appraisal?
Acquiring real estate can be the largest investment most people could ever encounter. It doesn't matter if where you raise your family, a second vacation property or an investment, purchasing real property is a detailed financial transaction that requires multiple parties to pull it all off.
Most people are familiar with the parties taking part in the transaction. The real estate agent is the most known face in the transaction. Then, the bank provides the money needed to fund the transaction. And ensuring all areas of the sale are completed and that the title is clear to pass to the buyer from the seller is the title company.
So, who makes sure the property is worth the purchase price? This is where the appraiser comes in. We provide an unbiased opinion 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 Frigoletto & Associates Inc. 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 responsibility to first perform a thorough inspection. We must physically view features, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they really exist and are in the condition a reasonable buyer would expect them to be. To make sure the stated size of the property has not been misrepresented and document the layout of the house, the inspection often includes creating a sketch of the floorplan. Most importantly, we identify any obvious amenities - or defects - that would affect the value of the property.
Once the site has been inspected, we use two or three approaches to determining the value of real property: a paired sales analysis, a replacement cost calculation, and an income approach when rental properties are prevalent.
Here, the appraiser uses information on local building costs, the cost of labor and other factors to determine how much it would cost to build a property nearly identical to the one being appraised. This figure often sets the maximum on what a property would sell for. It's also the least used method.
Paired Sales Analysis
Appraisers get to know the communities in which they appraise. They innately understand the value of certain features to the people of that area. Then, the appraiser researches recent transactions in the neighborhood and finds properties which are 'comparable' to the property being appraised. By assigning a dollar value to certain items such as fireplaces, room layout, appliance upgrades, additional bathrooms or bedrooms, or quality of construction, we add or subtract from each comparable's sales price so that they are more accurately in line with 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 Frigoletto & Associates Inc., we are experts when it comes to knowing the value of real estate features in Leominster and Worcester County neighborhoods. The sales comparison approach to value is most often given the most consideration when an appraisal is for a real estate purchase.
Valuation Using the Income Approach
In the case of income producing properties - rental houses for example - the appraiser may use a third approach to value. In this situation, the amount of income the property generates is taken into consideration along with other rents in the area for comparable properties to derive the current value.
Arriving at a Value Conclusion
Combining information from all approaches, the appraiser is then ready to put down an estimated market value for the property in question. It is important to note that while this amount is probably the most reliable indication of what a property 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. Regardless, the appraised value is typically used as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. The bottom line is, an appraiser from Frigoletto & Associates Inc. will guarantee you get the most fair and balanced property value, so you can make profitable real estate decisions.