Real Property Appraisals: A Primer

Acquiring real estate can be the biggest financial decision many could ever make. Whether it's a main residence, a seasonal vacation property or an investment, the purchase of real property is a detailed financial transaction that requires multiple parties to make it all happen.

Most of the parties involved are quite familiar. The real estate agent is the most familiar face in the transaction. Then, the mortgage company provides the money necessary to finance the exchange. And ensuring all aspects of the transaction are completed and that the title is clear to transfer from the seller to the buyer is the title company.

To learn more about appraising, click here to see a short video or call us today to talk about your specific property.

So, who's responsible for making sure the value of the property is consistent with the purchase price? 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 2 Rivers Appraisal Services, LLC. will ensure, you as an interested party, are informed.

Inspecting the subject property

Our first responsibility at 2 Rivers Appraisal Services, LLC. is to inspect the property to ascertain its true status. We must actually see features, 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 person would expect them to be. To make sure the stated size of the property has not been misrepresented and convey 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.

Following the inspection, an appraiser uses two or three approaches to determining the value of the property: a paired sales analysis, a replacement cost calculation, and an income approach when rental properties are prevalent.

Replacement Cost

This is where we gather information on local building costs, the cost of labor and other elements to calculate how much it would cost to construct a property comparable to the one 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.

Paired Sales Analysis

Appraisers get to know the neighborhoods in which they appraise. They thoroughly understand the value of certain features to the people of that area. Then, the appraiser researches recent sales in the area and finds properties which are 'comparable' to the real estate in question. By assigning a dollar value to certain items such as square footage, extra bathrooms, hardwood floors, fireplaces or view lots (just to name a few), we add or subtract from each comparable's sales price so that they are more accurately in line with the features of subject property.

  • If, for example, the comparable property has a storm shelter and the subject does not, 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.

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 2 Rivers Appraisal Services, LLC., we are experts when it comes to knowing the worth of real estate features in St Charles and Saint Charles County neighborhoods. The sales comparison approach to value is usually given the most weight when an appraisal is for a real estate sale.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - we may use an additional method of valuing a property. In this situation, the amount of revenue the real estate produces is taken into consideration along with other rents in the area for comparable properties to derive the current value.

Arriving at a Value Conclusion

Examining the data from all applicable approaches, the appraiser is then ready to state an estimated market value for the property in question. Note: While this amount is probably the best indication of what a house is worth, it probably will not be the price at which the property closes. There are always mitigating factors such as seller motivation, urgency or 'bidding wars' that may adjust the final price up or down. But the appraised value is typically used as a guideline for lenders who don't want to loan a buyer more money than they could recover in case they had to sell the property again. The bottom line is, an appraiser from 2 Rivers Appraisal Services, LLC. will guarantee you attain the most accurate property value, so you can make wise real estate decisions.




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