Real Property Appraisals: A Primer
Purchasing real estate is the most serious financial decision many people could ever consider. It doesn't matter if where you raise your family, a second vacation property or a rental fixer upper, purchasing real property is a detailed transaction that requires multiple parties to pull it all off.
Most people are familiar with the parties having a role in the transaction. The real estate agent is the most recognizable face in the exchange. Then, the mortgage company provides the financial capital required to bankroll the transaction. And the title company sees to it that all aspects of the transaction are completed and that the title is clear to transfer to the buyer from the seller.
So, who's responsible for making sure the value of the property is in line with 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 CDM Appraisals will ensure, you as an interested party, are informed.
The inspection is where an appraisal begins
Our first duty at CDM Appraisals is to inspect the property to ascertain its true status. We must see features hands on, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they indeed are there and are in the condition a reasonable person would expect them to be. The inspection often includes a sketch of the floorplan, ensuring the square footage is proper and illustrating the layout of the property. Most importantly, the appraiser looks for any obvious amenities - or defects - that would affect the value of the house.
Once the site has been inspected, we use two or three approaches to determining the value of real property: sales comparison and, in the case of a rental property, an income approach.
Here, we use information on local building costs, labor rates and other elements to determine how much it would cost to replace the property being appraised. This figure usually sets the maximum on what a property would sell for. It's also the least used method.
Paired Sales Analysis
Appraisers are intimately familiar with the subdivisions in which they work. They innately understand the value of certain features to the people of that area. Then, the appraiser looks up recent sales in the vicinity and finds properties which are 'comparable' to the real estate in question. By assigning a dollar value to certain items such as remodeled rooms, types of flooring, energy efficient items, patios and porches, or extra 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.
In the end, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At CDM Appraisals, we are experts when it comes to knowing the worth of particular items in Omaha and Douglas County neighborhoods. This approach to value is usually given the most consideration when an appraisal is for a home exchange.
Valuation Using the Income Approach
In the case of income producing properties - rental houses for example - we may use an additional method of valuing real estate. In this case, the amount of revenue the real estate produces is taken into consideration along with income produced by comparable properties to determine the current value.
Combining information from all approaches, the appraiser is then ready to state an estimated market value for the property in question. Note: While the appraised value is probably the strongest indication of what a house is worth, it probably will not be the final sales price. Depending on the individual circumstances of the buyer or seller, their level of urgency or a buyer's desire for that exact property, the closing price of a home can always be driven up or down.But 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 sell the property again. The bottom line is, an appraiser from CDM Appraisals will guarantee you attain the most fair and balanced property value, so you can make profitable real estate decisions.