An Overview of Appraisals
A home purchase can be the most important transaction some might ever make. Whether it's a primary residence, a seasonal vacation property or a rental fixer upper, the purchase of real property is a detailed financial transaction that requires multiple people working in concert to see it through.
Most people are familiar with the parties having a role in the transaction. The real estate agent is the most known face in the transaction. Next, the bank provides the financial capital required to bankroll the deal. Ensuring all details of the exchange are completed and that the title is clear to pass to the buyer from the seller is the title company.
So what party makes sure the real estate is consistent with the amount being paid? This is where you meet the appraiser. We provide an unbiased opinion of what a buyer might expect to pay - or a seller receive - for a property, where both buyer and seller are informed parties. A professional Ohio residential certified appraiser from Hutchins Appraisal Services will ensure you as an interested party are informed. If for financing, the appraiser can only share the information with the client, which is typically the lender or AMC due to finance and privacy regulations.
Appraisals begin with the home observation
To determine an accurate status of the property, it's our responsibility to first conduct a thorough observation. We must see aspects of the property hands on, such as the number of bedrooms and bathrooms, the location, living areas, etc., to ensure they indeed are there and are in the shape a reasonable person would expect them to be. To ensure the stated square footage is accurate and describe the layout of the property, the observation often entails creating a sketch of the floor plan. Most importantly, we look for any obvious amenities - or defects - that would have an impact on the value of the property.
Following the observation, 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.
This is where the appraiser gathers information on local building costs, the cost of labor and other factors to calculate how much it would cost to construct a property nearly identical to the one being appraised. This figure usually sets the maximum on what a property would sell for. It's also the least used predictor of value and only reliable on new homes.
Paired Sales Analysis
Appraisers get to know the neighborhoods in which they work. We innately understand the value of particular features to the residents of that area. Then, the appraiser researches recent transactions in the vicinity and finds properties which are 'comparable' to the real estate in question. Using knowledge of the value of certain items such as upgraded appliances, extra bathrooms, an additional living area, quality of construction, lot size, we adjust the comparable properties so that they more accurately portray the features of subject property.
For example, if the comparable property has a garage and the subject does not, the appraiser may subtract the value of a garage from the sales price of the comparable. Or if the subject has an extra half-bathroom and the comparable does not, the appraiser might add a certain amount to the comparable property.
At Hutchins Appraisal Services, we are an authority in knowing the value of real estate features in Erie, Huron, Ottawa and Sandusky County neighborhoods. The sales comparison approach to value is typically given the most consideration when an appraisal is for a home sale.
Valuation Using the Income Approach
In the case of income producing properties - rental houses for example - we may use a third way of valuing a house. In this case, the amount of income the property yields is factored in with other rents in the area for comparable properties to derive the current value.
The Bottom Line
Examining the data from all approaches, the appraiser is then ready to put down an estimated market value for the property in question. Note: While this amount is probably the best indication of what a property would sell for in an open market, it may not be the price at which the property closes. Depending on the individual situations 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 often used as a guideline for lenders who don't want to loan a buyer more money than the property would likely sell for in an open marketplace. At the end of the day: An appraiser from Hutchins Appraisal Services will help you get the most accurate property value, so you can make profitable real estate decisions.