What Are the Components of an Appraisal?
Acquiring a house can be the largest transaction some could ever make. Whether it's where you raise your family, a seasonal vacation property or a rental fixer upper, the purchase of real property is a detailed transaction that requires multiple people working in concert to pull it all off.
Practically all the participants are quite familiar. The real estate agent is the most known entity in the exchange. Next, the bank provides the money required to finance the transaction. And the title company ensures that all requirements of the sale are completed and that a clear title transfers from the seller to the purchaser.
So, who makes sure the value of the property is consistent with the amount being paid? In comes the appraiser. 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 PSM Appraisals, LLC will ensure, you as an interested party, are informed.
Appraisals begin with the inspection
Our first responsibility at PSM Appraisals, LLC is to inspect the property to ascertain its true status. We must physically view features, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they really are present and are in the condition a typical buyer would expect them to be. The inspection often includes a sketch of the property, ensuring the square footage is accurate and illustrating the layout of the property. Most importantly, the appraiser looks for any obvious amenities - or defects - that would have an impact on the value of the house.
Following the inspection, we use two or three approaches to determining the value of the property: paired sales analysis and, in the case of a rental property, an income approach.
This is where we pull information on local construction costs, labor rates and other factors to derive how much it would cost to replace the property being appraised. This figure usually sets the maximum on what a property would sell for. It's also the least used method.
Paired Sales Analysis
Appraisers are intimately familiar with the neighborhoods in which they appraise. They innately understand the value of certain features to the residents of that area. Then, the appraiser looks up recent transactions in the area 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 match the features of subject.
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 PSM Appraisals, LLC, we are experts in knowing the worth of particular items in Babylon and Suffolk County neighborhoods. The sales comparison approach to value is usually 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 method of valuing a house. In this situation, the amount of income the property yields is taken into consideration along with other rents in the area for comparable properties to determine the current value.
Coming Up With The Final Value
Analyzing the data from all applicable approaches, the appraiser is then ready to state an estimated market value for the property in question. It is important to note that while the appraised value is probably the most accurate indication of what a property is worth, it may 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 an offer or listing price up or down. But the appraised value is often employed 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 PSM Appraisals, LLC will guarantee you attain the most fair and balanced property value, so you can make the most informed real estate decisions.