Understanding Appraisals

Buying a home is the most significant transaction many of us could ever make. It doesn't matter if a primary residence, an additional vacation property or an investment, purchasing real property is a complex transaction that requires multiple people working in concert to make it all happen.

You're probably familiar with the parties having a role in the transaction. The most recognizable face in the transaction is the real estate agent. Then, the lender provides the financial capital needed to fund the deal. And ensuring all details of the sale are completed and that the title is clear to pass to the buyer from the seller is the title company.

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So, who's responsible for making sure the real estate is worth the amount being paid? This is where the appraiser comes in. 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 Professional Appraiser Network will ensure, you as an interested party, are informed.

The inspection is where an appraisal starts

To ascertain the true status of the property, it's our responsibility to first perform a thorough inspection. We must see aspects of the property first hand, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they really exist and are in the shape a typical person would expect them to be. To make sure 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, the appraiser identifies any obvious features - or defects - that would affect the value of the house.

Once the site has been inspected, we use two or three approaches to determining the value of the property: a sales comparison, a replacement cost calculation, and an income approach when rental properties are prevalent.

Cost Approach

This is where we use information on local building costs, labor rates and other elements to ascertain how much it would cost to construct a property similar to the one being appraised. This figure often sets the maximum 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 communities in which they appraise. They thoroughly understand the value of specific features to the residents of that area. Then, the appraiser looks up recent transactions in the vicinity and finds properties which are 'comparable' to the subject in question. Using knowledge of the value of certain items such as upgraded appliances, additional bathrooms, additional living area, quality of construction, lot size, we adjust the comparable properties so that they more accurately portray the features of subject property.

For example, if the comparable property has a storm shelter and the subject doesn't, the appraiser may subtract the value of a storm shelter from the sales price of the comparable.
If the subject property has an extra half-bathroom and the comparable does not, the appraiser might add an amount to the comparable property.

A true estimate of what the subject might sell for can only be determined once all differences between the comps and the subject have been evaluated. At Professional Appraiser Network, we are an authority when it comes to knowing the worth of real estate features in Lansing and Cook County neighborhoods. The sales comparison approach to value is usually given the most importance when an appraisal is for a home purchase.

Valuation Using the Income Approach

A third method of valuing a house is sometimes employed when a neighborhood has a measurable number of renter occupied properties. In this case, the amount of income the property yields is factored in 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 subject property. It is important to note that while this amount is probably the best indication of what a house is worth, it probably will not be the final sales price. 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 often used as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. At the end of the day, an appraiser from Professional Appraiser Network will guarantee you discover the most accurate property value, so you can make the most informed real estate decisions.