How Does the Appraisal Process Work?A home purchase can be the most significant investment most of us will ever encounter. Whether it's a primary residence, a second vacation home or a rental fixer upper, purchasing real property is a complex transaction that requires multiple parties to see it through.
We, as the appraiser, provide an unbiased estimate of what a buyer might expect to pay - or a seller receive - for a property, where both buyer and seller are informed parties. A professional Indiana licensed appraiser from LightHouse Appraisals will ensure you are informed.
An appraisal starts with an inspection.The inspection determines an accurate status of the property so it's our responsibility to first conduct a thorough inspection. We must physically view the property, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they indeed are present and are in the shape a typical person would expect them to be. The inspection often includes a sketch of the house, ensuring the square footage is proper and conveying the layout of the property. Most importantly, we look for any obvious features - or defects - that would affect the value of the house.
Back at the office, an appraiser employs two or three approaches when determining the value of the property: paired sales analysis and, in the case of a rental property, an income approach.
Replacement CostThis is where we use information on local construction costs, labor rates and other factors to derive how much it would cost to replace the property being appraised. This estimate usually sets the upper limit on what a property would sell for. The cost approach is also the least used method.
Paired Sales AnalysisWe, as appraisers, get to know the neighborhoods in which we appraise. We thoroughly understand the value of certain features to the people of that area. Then, we look up recent sales in close proximity to the subject and find properties which are 'comparable' to the property at hand. Using knowledge of the value of certain items such as fireplaces, room layout, appliance upgrades, extra bathrooms or bedrooms, or quality of construction, we add or subtract from each comparable's sales price so that they are more accurately in line with the features of subject.
Valuation Using the Income ApproachA third way of valuing a property is sometimes applied when an area has a measurable number of rental properties. In this situation, the amount of revenue the real estate yields is factored in with other rents in the area for comparable properties to derive the current value.
Coming Up With the Final ValueAnalyzing the data from all applicable approaches, the appraiser is then ready to document an estimated market value for the property at hand. The estimate of value at the bottom of the appraisal report is not always the final sales price 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'. But the appraised value is typically employed as a guideline for lenders who don't want to loan a buyer more money than the property would likely sell for in an open marketplace. Here's what it all boils down to: An appraiser from LightHouse Appraisals will help you discover the most fair and balanced property value, so you can make wise real estate decisions.