What goes into an appraisal?One's home purchase can be the most significant financial decision many of us may ever consider. Whether it's a primary residence, an additional vacation home or one of many rentals, the purchase of real property is a detailed financial transaction that requires multiple parties to see it through.
Most people are familiar with the parties having a role in the transaction. The most known person in the exchange is the real estate agent. Next, the bank provides the money necessary to finance the deal. The title company ensures that all aspects of the sale are completed and that a clear title transfers from the seller to the buyer.
So what party is responsible for making sure the property is consistent with 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 professional Arkansas licensed appraiser from Ken Colley & Associates Inc. will ensure you as an interested party are informed.
The inspection is where an appraisal beginsOur first responsibility at Ken Colley & Associates Inc. is to inspect the property to determine its true status. We must physically view aspects of the property, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they really are present and are in the shape a reasonable buyer would expect them to be. To ensure the stated square footage has not been misrepresented and convey the layout of the house, the inspection often entails creating a sketch of the floor plan. Most importantly, we look for any obvious amenities - or defects - that would affect the value of the property.
After the inspection, an appraiser employs two or three approaches when determining the value of the property: a sales comparison, a replacement cost calculation, and an income approach when rental properties are prevalent.
Replacement CostHere, the appraiser uses information on local construction costs, labor rates and other elements to determine how much it would cost to build a property nearly identical to the one being appraised. This estimate usually sets the maximum on what a property would sell for. It's also the least used predictor of value.
Analyzing Comparable SalesAppraisers get to know the subdivisions in which they appraise. We thoroughly understand the value of certain features to the people of that area. Then, the appraiser researches recent sales in close proximity to the subject and finds properties which are 'comparable' to the home in question. By assigning a dollar value to certain items such as remodeled rooms, types of flooring, energy efficient items, patios and porches, or additional storage space, we adjust the comparable properties so that they are more accurately in line with the features of subject.
Valuation Using the Income ApproachA third method of valuing approach to value is sometimes used when an area has a reasonable number of rental properties. In this situation, the amount of revenue the property generates is taken into consideration along with other rents in the area for comparable properties to determine the current value.
ReconciliationCombining information from all approaches, the appraiser is then ready to state an estimated market value for the property in question. The estimate of value at the bottom of the appraisal report is not necessarily what's being paid for the property even though it is likely the best indication of what a property could sell for in an open market. 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 employed as a guideline for lenders who don't want to loan a buyer more money than they could get back in the event they had to sell the property again. Here's what it all boils down to: An appraiser from Ken Colley & Associates Inc. will help you discover the most accurate property value, so you can make wise real estate decisions.