Understanding Appraisals

Purchasing a house can be the most serious investment some may ever consider. Whether it's where you raise your family, an additional vacation home or a rental fixer upper, the purchase of real property is a complex financial transaction that requires multiple people working in concert to make it all happen.

The majority of the participants are quite familiar. The real estate agent is the most familiar entity in the transaction. Then, the mortgage company provides the financial capital necessary to finance the exchange. And the title company makes sure that all aspects of the exchange are completed and that a clear title passes from the seller to the buyer.

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So, who's responsible for making sure the value of the real estate 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 property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from John McCarty will ensure, you as an interested party, are informed.

The inspection is where an appraisal starts

To determine the true status of the property, it's our responsibility to first complete a thorough inspection. We must physically view aspects of the property, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they truly are present and are in the shape a reasonable buyer would expect them to be. To make sure the stated size of the property is accurate and illustrate the layout of the property, the inspection often requires creating a sketch of the floorplan. Most importantly, the appraiser identifies any obvious features - or defects - that would have an impact on the value of the house.

Once the site has been inspected, 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.

Cost Approach

Here, the appraiser analyzes information on local construction costs, the cost of labor and other factors to ascertain how much it would cost to build a property similar to the one being appraised. This estimate usually 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 subdivisions in which they work. They thoroughly understand the value of certain features to the people of that area. Then, the appraiser researches recent sales in the area and finds properties which are 'comparable' to the subject 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 adjust the comparable properties so that they more accurately match the features of subject property.

If, for example, the comparable property has an extra half bath that the subject does not, the appraiser may subtract the value of that half bath from the sales price of the comparable.
However, if the subject has an extra half-bathroom and the comparable does not, the appraiser might add a certain amount to the comparable property.

A true estimate of what the subject might sell for can only be determined once all differences between the comps and the subject have been evaluated. When it comes to putting a value on features of homes in Chatham and Morris, John McCarty can't be beat. This approach to value is commonly awarded the most weight when an appraisal is for a real estate purchase.

Valuation Using the Income Approach

A third way of valuing real estate is sometimes employed when a neighborhood has a reasonable number of renter occupied properties. In this scenario, the amount of income the property produces is factored in with other rents in the area for comparable properties to give an indicator of the current value.

Putting It All Together

Combining information from all applicable approaches, the appraiser is then ready to state an estimated market value for the property in question. It is important to note that while this amount is probably the best indication of what a house is worth, it probably will not be the final sales price. There are always mitigating factors such as seller motivation, urgency or 'bidding wars' that may adjust an offer or listing 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 the property is actually worth. Here's what it all boils down to, an appraiser from John McCarty will guarantee you attain the most accurate property value, so you can make profitable real estate decisions.