What are the components of an appraisal?One's home purchase is the most important financial decision some of us will ever consider. It doesn't matter if it's a main residence, an additional vacation home or one of many rentals, purchasing real property is a detailed financial transaction that requires multiple parties to pull it all off.
Practically all the participants are very familiar. The real estate agent is the most recognizable face in the transaction. Then, the bank provides the money necessary to finance the transaction. Ensuring all aspects of the transaction are completed and that the title is clear to transfer from the seller to the purchaser is the title company.
So who makes sure the property is consistent with the purchase price? This is where the appraiser comes in. 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 professional Tennessee licensed appraiser from Haley-Worsham & Associates LLC will ensure you as an interested party are informed.
The inspection is where an appraisal beginsTo ascertain the true status of the property, it's our duty to first conduct a thorough inspection. We must actually see aspects of the property, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they truly exist and are in the condition a reasonable buyer would expect them to be. The inspection often includes a sketch of the property, ensuring the square footage is proper and illustrating the layout of the property. Most importantly, the appraiser looks for any obvious features - or defects - that would affect the value of the house.
Back at the office, we use two or three approaches when determining the value of real property: a paired sales analysis, a replacement cost calculation, and an income approach when rental properties are prevalent.
Cost ApproachThis is where we use information on local construction costs, labor rates and other elements to figure out how much it would cost to construct a property comparable to the one being appraised. This value often sets the maximum on what a property would sell for. The cost approach is also the least used predictor of value.
Sales ComparisonAppraisers are intimately familiar with the neighborhoods in which they work. We thoroughly understand the value of certain features to the residents of that area. Then, the appraiser researches recent transactions in the neighborhood and finds properties which are 'comparable' to the subject being appraised. Using knowledge of the value of certain items such as upgraded appliances, additional bathrooms, an additional living area, quality of construction, lot size, we add or subtract from each comparable's sales price so that they more accurately portray the features of subject.
Valuation Using the Income ApproachA third method of valuing approach to value is sometimes employed when a neighborhood has a measurable number of renter occupied properties. In this case, the amount of income the real estate yields is factored in with other rents in the area for comparable properties to derive the current value.
Putting It All TogetherCombining information from all approaches, the appraiser is then ready to state an estimated market value for the property in question. Note: While the appraised value is probably the most reliable indication of what a property would sell for in an open market, it probably will not be the price at which the property closes. Prices can always 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 used as a guideline for lenders who don't want to loan a buyer more money than they could get back in the event they had to sell the property again. The bottom line is: An appraiser from Haley-Worsham & Associates LLC will help you discover the most accurate property value, so you can make wise real estate decisions.