Understanding Appraisals

A home purchase can be the most important investment some people may ever encounter. Whether it's where you raise your family, a seasonal vacation home or one of many rentals, the purchase of real property is an involved financial transaction that requires multiple parties to make it all happen.

Practically all the people participating are quite familiar. The most recognizable face in the exchange is the real estate agent. Next, the mortgage company provides the financial capital required to finance the exchange. And ensuring all aspects of the transaction are completed and that a clear title transfers from the seller to the purchaser 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, what party is responsible for making sure the real estate 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 L & L Appraisal Service will ensure, you as an interested party, are informed.

The inspection is where an appraisal starts

Our first responsibility at L & L Appraisal Service is to inspect the property to determine its true status. 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 are present and are in the shape a typical buyer would expect them to be. To make sure the stated size of the property is accurate and document the layout of the home, the inspection often requires creating a sketch of the floorplan. Most importantly, the appraiser identifies any obvious features - or defects - that would affect the value of the property.

Next, after the inspection, 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.

Cost Approach

This is where we gather information on local construction costs, the cost of labor and other elements to derive how much it would cost to build a property comparable to the one being appraised. This estimate usually sets the upper limit on what a property would sell for. It's also the least used predictor of value.

Sales Comparison

Appraisers get to know the communities in which they work. They thoroughly understand the value of specific features to the residents of that area. Then, the appraiser researches recent transactions in the area and finds properties which are 'comparable' to the property 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 more accurately match the features of subject.

For example, if the comparable property has a fireplace and the subject doesn't, the appraiser may subtract the value of a fireplace from the sales price of the comparable home.
In the case where the subject has something such as an extra half bath that a comparable doesn't have, the appraiser might add the value of that bath to the comparable property.

An opinion of what the subject could sell for can only be determined once all differences between the comps and the subject have been evaluated. At L & L Appraisal Service, we are an authority in knowing the value of particular items in State Center and Marshall County neighborhoods. The sales comparison approach to value is commonly given the most consideration 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 - the appraiser may use an additional way of valuing real estate. In this case, the amount of revenue the real estate yields is factored in with income produced by comparable properties to determine the current value.

Reconciliation

Analyzing the data from all applicable approaches, the appraiser is then ready to state an estimated market value for the property at hand. Note: While this amount is probably the most accurate indication of what a house is worth, it probably will not be the price at which the property closes. Depending on the specific 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 typically 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 L & L Appraisal Service will guarantee you discover the most fair and balanced property value, so you can make wise real estate decisions.