Decoding the Appraisal Process
Buying a house can be the most significant transaction most of us will ever consider. It doesn't matter if a primary residence, a second vacation home or a rental fixer upper, the purchase of real property is a detailed financial transaction that requires multiple parties to pull it all off.
Practically all the participants are very familiar. The most known face in the exchange is the real estate agent. Next, the mortgage company provides the money necessary to fund the transaction. And the title company makes sure that all aspects of the transaction are completed and that a clear title transfers to the buyer from the seller.
So, what party is responsible for making sure the real estate is worth the amount being paid? In comes the appraiser. 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 Crest Appraisal Services will ensure, you as an interested party, are informed.
Inspecting the subject property
To determine the true status of the property, it's our duty to first conduct a thorough inspection. We must physically see features, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they indeed exist and are in the shape a reasonable person would expect them to be. To make sure the stated size of the property has not been misrepresented and describe the layout of the property, the inspection often includes creating a sketch of the floorplan. Most importantly, we look for any obvious amenities - or defects - that would have an impact on the value of the house.
Following the inspection, we use two or three approaches to determining the value of the property: a paired sales analysis, a replacement cost calculation, and an income approach when rental properties are prevalent.
Here, we analyze information on local construction costs, labor rates and other factors to derive how much it would cost to construct a property nearly identical to the one being appraised. This estimate often sets the upper limit on what a property would sell for. The cost approach is also the least used method.
Paired Sales Analysis
Appraisers get to know the neighborhoods in which they appraise. They thoroughly understand the value of certain features to the residents of that area. Then, the appraiser looks up recent sales in close proximity to the subject and finds properties which are 'comparable' to the property at hand. By assigning a dollar value to 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 are more accurately in line with the features of subject.
After all differences have been accounted for, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At Crest Appraisal Services, we are an authority in knowing the value of real estate features in Seattle and King County neighborhoods. This approach to value is commonly given the most weight when an appraisal is for a home exchange.
Valuation Using the Income Approach
A third method of valuing real estate is sometimes applied when a neighborhood has a reasonable number of rental properties. In this case, the amount of revenue the property generates is taken into consideration along 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 at hand. Note: While the appraised value is probably the best indication of what a property is worth, it may not be the final sales price. There are always mitigating factors such as the seller's desire to get out of the property, urgency or 'bidding wars' that may adjust the final price up or down. Regardless, 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 Crest Appraisal Services will help you attain the most accurate property value, so you can make profitable real estate decisions.