What Are the Components of an Appraisal?
Getting real estate is the largest transaction most people may ever consider. 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 parties to make it all happen.
Practically all the participants are very familiar. The most recognizable person in the transaction is the real estate agent. Then, the lender provides the money needed to finance the deal. The title company sees to it that all requirements of the exchange are completed and that a clear title passes to the buyer from the seller.
So, who makes sure the real estate is worth 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 property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from BK Appraisal Services will ensure, you as an interested party, are informed.
The inspection is where an appraisal starts
Our first task at BK Appraisal Services is to inspect the property to ascertain its true status. We must physically view features, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they really are there and are in the condition a reasonable person would expect them to be. To make sure the stated size of the property is accurate and describe the layout of the home, the inspection often requires creating a sketch of the floorplan. Most importantly, we identify any obvious features - or defects - that would have an impact on the value of the property.
Next, after the inspection, we use two or three approaches to determining the value of the property: a sales comparison, a replacement cost calculation, and an income approach when rental properties are prevalent.
Here, the appraiser gathers information on local building costs, labor rates and other elements to determine how much it would cost to replace the property being appraised. This value often sets the maximum on what a property would sell for. It's also the least used method.
Analyzing Comparable Sales
Appraisers can tell you a lot about the neighborhoods in which they work. They innately understand the value of specific features to the homeowners of that area. Then, the appraiser researches recent transactions in the area and finds properties which are 'comparable' to the subject at hand. Using knowledge of the value of certain items such as fireplaces, room layout, appliance upgrades, extra bathrooms or bedrooms, or quality of construction, we add or subtract from each comparable's sales price so that they more accurately portray the features of subject.
A true 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 BK Appraisal Services, we are an authority in knowing the worth of particular items in Virginia Beach and Virginia Beach City County neighborhoods. This approach to value is commonly given the most consideration when an appraisal is for a home purchase.
Valuation Using the Income Approach
In the case of income producing properties - rental houses for example - the appraiser may use a third approach to value. In this scenario, the amount of income the real estate generates is factored in with other rents in the area for comparable properties to determine the current value.
Arriving at a Value Conclusion
Combining information from all applicable approaches, the appraiser is then ready to state an estimated market value for the subject property. Note: While the appraised value is probably the most reliable indication of what a property is worth, it may not be the final sales price. There are always mitigating factors such as seller motivation, urgency or 'bidding wars' that may adjust the final 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 the property is actually worth. At the end of the day, an appraiser from BK Appraisal Services will help you get the most accurate property value, so you can make the most informed real estate decisions.
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