What Goes Into an Appraisal?
Acquiring a home can be the biggest financial decision some may ever make. It doesn't matter if a primary residence, an additional vacation home or an investment, the purchase of real property is a detailed transaction that requires multiple people working in concert to pull it all off.
You're likely to be familiar with the parties taking part in the transaction. The most known entity in the exchange is the real estate agent. Then, the lender provides the financial capital required to bankroll the exchange. And ensuring all areas of the transaction are completed and that the title is clear to transfer to the buyer from the seller is the title company.
So, who's responsible for making sure the value of the real estate is in line with the amount being paid? This is where you meet 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 Big Island Appraisal Services will ensure, you as an interested party, are informed.
Appraisals begin with the property inspection
Our first task at Big Island Appraisal Services is to inspect the property to ascertain its true status. We must see aspects of the property hands on, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they really 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 correct and conveying the layout of the property. Most importantly, the appraiser identifies any obvious features - or defects - that would have an impact on the value of the property.
Back at the office, we use two or three approaches to determining the value of real property: paired sales analysis and, in the case of a rental property, an income approach.
Here, the appraiser pulls information on local construction costs, labor rates and other factors to figure out how much it would cost to construct a property similar to the one being appraised. This figure commonly sets the maximum on what a property would sell for. The cost approach is also the least used predictor of value.
Analyzing Comparable Sales
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 close proximity to the subject and finds properties which are 'comparable' to the subject in question. By assigning a dollar value to certain items such as square footage, additional bathrooms, hardwood floors, fireplaces or view lots (just to name a few), we add or subtract from each comparable's sales price so that they are more accurately in line with the features of subject property.
Once all necessary adjustments have been made, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. When it comes to associating a value with features of homes in Hilo and Hawaii, Big Island Appraisal Services can't be beat. This approach to value is most often awarded the most consideration when an appraisal is for a real estate exchange.
Valuation Using the Income Approach
A third method of valuing a property is sometimes applied when an area has a measurable number of renter occupied properties. In this case, the amount of revenue the property yields is factored in with other rents in the area for comparable properties to derive the current value.
Putting It All Together
Combining information from all applicable approaches, the appraiser is then ready to put down an estimated market value for the property at hand. It is important to note that while this amount is probably the most reliable indication of what a property is worth, it may not be the final sales price. 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'. 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 case they had to put the property on the market again. At the end of the day, an appraiser from Big Island Appraisal Services will help you discover the most accurate property value, so you can make profitable real estate decisions.