Real Estate Appraisals: A Primer
Their home's purchase is the most serious financial decision some of us will ever make. It doesn't matter if where you raise your family, a seasonal vacation home or an investment, the purchase of real property is a complex transaction that requires multiple people working in concert to make it all happen.
You're probably familiar with the parties having a role in the transaction. The real estate agent is the most known entity in the exchange. Then, the lender provides the money required to finance the exchange. And the title company ensures that all areas of the sale are completed and that the title is clear to transfer from the seller to the purchaser.
So, who makes sure the value of the real estate is in line with the amount being paid? This is where the appraiser comes in. We provide an unbiased estimate of what a buyer could 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 Ferrari Appraisals LLC will ensure, you as an interested party, are informed.
The inspection is where an appraisal begins
Our first duty at Ferrari Appraisals LLC is to inspect the property to ascertain its true status. We must see features first hand, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they truly are present and are in the shape a typical buyer would expect them to be. To ensure the stated square footage has not been misrepresented and document the layout of the property, the inspection often requires creating a sketch of the floorplan. Most importantly, we identify any obvious amenities - or defects - that would affect the value of the house.
Next, after the inspection, we use two or three approaches to determining the value of the property: sales comparison and, in the case of a rental property, an income approach.
This is where we use information on local construction costs, the cost of labor and other factors to calculate how much it would cost to replace the property being appraised. This value often sets the upper limit on what a property would sell for. It's also the least used method.
Appraisers get to know the communities in which they appraise. They innately understand the value of particular features to the homeowners of that area. Then, the appraiser looks up recent sales in the vicinity and finds properties which are 'comparable' to the real estate at hand. Using knowledge of the value of certain items such as upgraded appliances, extra bathrooms, additional living area, quality of construction, lot size, we adjust the comparable properties so that they more accurately portray the features of subject property.
A true 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 Ferrari Appraisals LLC, we are experts in knowing the value of particular items in Marlborough and Hartford County neighborhoods. The sales comparison approach to value is commonly awarded the most consideration when an appraisal is for a home purchase.
Valuation Using the Income Approach
A third method of valuing real estate is sometimes applied when an area has a reasonable number of rental properties. In this situation, the amount of income the property generates is factored in with other rents in the area for comparable properties to derive the current value.
Putting It All Together
Analyzing the data from all approaches, the appraiser is then ready to document an estimated market value for the property in question. It is important to note that while this amount is probably the most reliable indication of what a property is worth, it probably will 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. Regardless, the appraised value is typically employed as a guideline for lenders who don't want to loan a buyer more money than they could recover in case they had to put the property on the market again. The bottom line is, an appraiser from Ferrari Appraisals LLC will guarantee you get the most fair and balanced property value, so you can make the most informed real estate decisions.