Comprehending Appraisals

Purchasing a house is the most important financial decision many people will ever make. Whether it's a primary residence, a second vacation home or a rental fixer upper, the purchase of real property is an involved financial transaction that requires multiple people working in concert to make it all happen.

Most of the participants are quite familiar. The real estate agent is the most known person in the transaction. Then, the mortgage company provides the financial capital necessary to bankroll the transaction. And the title company ensures that all aspects of the exchange are completed and that the title is clear to pass to the buyer from the seller.

To learn more about appraising, click here to see a short video or call us today to talk about your specific property.

So, who's responsible for making sure the value of the property is in line with the amount being paid? In comes the appraiser. We provide an unbiased opinion 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 Genesis Appraisal, Inc. will ensure, you as an interested party, are informed.

The inspection is where an appraisal begins

Our first task at Genesis Appraisal, Inc. is to inspect the property to determine its true status. We must see features 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 person would expect them to be. The inspection often includes a sketch of the floorplan, ensuring the square footage is accurate and illustrating the layout of the property. Most importantly, the appraiser identifies any obvious features - or defects - that would affect the value of the property.

Following the inspection, an appraiser uses 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.

Replacement Cost

Here, the appraiser uses information on local construction costs, the cost of labor and other elements to figure out how much it would cost to replace the property being appraised. This value commonly sets the upper limit on what a property would sell for. It's also the least used predictor of value.

Paired Sales Analysis

Appraisers become very familiar with the neighborhoods in which they appraise. They thoroughly understand the value of certain features to the homeowners of that area. Then, the appraiser looks up recent sales in the area and finds properties which are 'comparable' to the property at hand. Using knowledge of the value of certain items such as remodeled rooms, types of flooring, energy efficient items, patios and porches, or additional storage space, we add or subtract from each comparable's sales price so that they more accurately portray the features of subject property.

  • If, for example, the comparable has a storm shelter and the subject does not, the appraiser may subtract the value of a storm shelter from the sales price of the comparable home.
  • In the case where the subject has something such as an extra half bath that a comparable doesn't have, the appraiser might add the value of that bath to the comparable property.

A valid estimate of what the subject could sell for can only be determined once all differences between the comps and the subject have been evaluated. At Genesis Appraisal, Inc., we are experts when it comes to knowing the value of particular items in FARMINGTON and Dakota County neighborhoods. The sales comparison approach to value is most often awarded the most importance when an appraisal is for a home exchange.

Valuation Using the Income Approach

A third method of valuing approach to value is sometimes applied when an area has a reasonable number of rental properties. In this scenario, the amount of income the real estate yields is taken into consideration along with income produced by neighboring properties to determine the current value.

Reconciliation

Combining information from all approaches, the appraiser is then ready to put down an estimated market value for the property in question. Note: While the appraised value is probably the most accurate indication of what a house is worth, it probably will not be the final sales price. Depending on the individual situations 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 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. It all comes down to this, an appraiser from Genesis Appraisal, Inc. will help you get the most accurate property value, so you can make profitable real estate decisions.