What goes into an appraisal?Purchasing a house can be the biggest financial decision most of us might ever make. It doesn't matter if it's where you raise your family, a second vacation property or a rental fixer upper, purchasing real property is a complex transaction that requires multiple parties to see it through.
You're probably familiar with the parties taking part in the transaction. The most familiar person in the transaction is the real estate agent. Next, the lender provides the money needed to finance the exchange. Ensuring all requirements of the exchange are completed and that a clear title transfers from the seller to the buyer is the title company.
So what party makes sure the real estate is consistent with the purchase price? In comes the appraiser. We provide an unbiased opinion of what a buyer might expect to pay - or a seller receive - for a parcel of real estate, where both buyer and seller are informed parties. A professional Hawaii licensed appraiser from HI-Appraisals will ensure you as an interested party are informed.
Inspecting the subject propertyTo ascertain the true status of the property, it's our duty to first conduct a thorough inspection. We must see aspects of the property first hand, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they indeed are there and are in the condition a reasonable buyer would expect them to be. To ensure the stated square footage has not been misrepresented and document the layout of the house, the inspection often includes creating a sketch of the floor plan. Most importantly, the appraiser identifies any obvious features - or defects - that would affect the value of the property.
Back at the office, we use two or three approaches when determining the value of the property: a sales comparison, a replacement cost calculation, and an income approach when rental properties are prevalent.
Cost ApproachThis is where we pull information on local building costs, labor rates and other factors to calculate how much it would cost to replace the property being appraised. This figure commonly sets the upper limit on what a property would sell for. The cost approach is also the least used predictor of value.
Analyzing Comparable SalesAppraisers are intimately familiar with the subdivisions in which they work. We thoroughly understand the value of certain features to the people of that area. Then, the appraiser looks up recent transactions in close proximity to the subject and finds properties which are 'comparable' to the home in question. Using knowledge of the value of certain items such as square footage, extra 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 more accurately portray the features of subject.
Valuation Using the Income ApproachA third method of valuing real estate is sometimes employed when a neighborhood has a measurable number of rental properties. In this case, the amount of revenue the real estate generates is taken into consideration along with income produced by nearby properties to derive the current value.
Coming Up With the Final ValueAnalyzing the data from all approaches, the appraiser is then ready to state an estimated market value for the property in question. The estimate of value on the appraisal report is not necessarily what's being paid for the property even though it is likely the best indication of what a property could sell for in an open market. 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 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 sell the property again. At the end of the day: An appraiser from HI-Appraisals will guarantee you attain the most accurate property value, so you can make profitable real estate decisions.