What Goes Into an Appraisal?
Their home's purchase is the most significant investment most may ever encounter. Whether it's a primary residence, an additional vacation home or one of many rentals, purchasing real property is a detailed financial transaction that requires multiple parties to see it through.
Practically all the parties involved are very familiar. The most familiar face in the transaction is the real estate agent. Next, the mortgage company provides the money necessary to finance the transaction. And ensuring all details of the transaction are completed and that a clear title transfers from the seller to the purchaser is the title company.
So, what party makes 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 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 MI Action Appraisal will ensure, you as an interested party, are informed.
Inspecting the subject property
To ascertain an accurate status of the property, it's our responsibility to first perform a thorough inspection. We must see aspects of the property hands on, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they indeed are there 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 correct and illustrating the layout of the property. Most importantly, we identify any obvious amenities - or defects - that would have an impact on the value of the house.
Next, after the inspection, an appraiser uses two or three approaches to determining the value of the property: sales comparison and, in the case of a rental property, an income approach.
Here, the appraiser analyzes information on local construction costs, labor rates and other elements to calculate how much it would cost to replace the property being appraised. This estimate often sets the maximum on what a property would sell for. It's also the least used predictor of value.
Appraisers are intimately familiar with the subdivisions in which they work. They innately understand the value of specific features to the homeowners of that area. Then, the appraiser looks up recent sales in the neighborhood and finds properties which are 'comparable' to the home in question. By assigning a dollar value to certain items such as upgraded appliances, extra bathrooms, additional living area, quality of construction, lot size, we add or subtract from each comparable's sales price so that they are more accurately in line with the features of subject property.
A valid 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 MI Action Appraisal, we are experts when it comes to knowing the worth of particular items in Livonia and Wayne County neighborhoods. This approach to value is commonly awarded the most importance when an appraisal is for a home sale.
Valuation Using the Income Approach
In the case of income producing properties - rental houses for example - the appraiser may use an additional approach to value. In this situation, the amount of income the real estate produces is taken into consideration along with income produced by similar properties to determine the current value.
Putting It All Together
Combining information from all applicable approaches, the appraiser is then ready to document an estimated market value for the subject property. The estimate of value on the appraisal report is not necessarily what's being paid for the property even though it is likely the best indication of a property's valueDepending 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 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 MI Action Appraisal will guarantee you discover the most fair and balanced property value, so you can make wise real estate decisions.