Purchasing a house is the biggest investment some could ever encounter. Whether it's a main residence, a seasonal vacation property or one of many rentals, purchasing real property is an involved financial transaction that requires multiple people working in concert to make it all happen.
Most people are familiar with the parties taking part in the transaction. The most recognizable entity in the exchange is the real estate agent. Then, the bank provides the financial capital required to bankroll the transaction. And ensuring all areas of the exchange are completed and that the title is clear to transfer from the seller to the buyer is the title company.
So, what party is responsible for making sure the real estate is worth the purchase price? This is where the appraiser comes in. 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 licensed, certified, professional appraiser from Mitchell Appraisals will ensure, you as an interested party, are informed.
Appraisals start with the property inspection
To determine an accurate status of the property, it's our duty to first perform a thorough inspection. We must actually view aspects of the property, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they indeed are present and are in the shape a typical person would expect them to be. To make sure the stated square footage is accurate and convey the layout of the home, the inspection often entails creating a sketch of the floorplan. Most importantly, we look for any obvious amenities - or defects - that would affect the value of the property.
Following the inspection, 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.
This is where we analyze information on local construction costs, the cost of labor and other elements to figure out how much it would cost to replace the property being appraised. This value commonly sets the upper limit on what a property would sell for. It's also the least used method.
Paired Sales Analysis
Appraisers can tell you a lot about the neighborhoods in which they appraise. They thoroughly understand the value of specific features to the people of that area. Then, the appraiser researches recent sales in close proximity to the subject and finds properties which are 'comparable' to the property at hand. 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 match the features of subject property.
Once all necessary adjustments have been made, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At Mitchell Appraisals, we are an authority in knowing the worth of real estate features in Navarre and Santa Rosa County neighborhoods. The sales comparison approach to value is most often awarded the most importance 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 an additional approach to value. In this scenario, 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 document an estimated market value for the property in question. The estimate of value at the bottom of the appraisal report is not always the final sales price even though it is likely the best indication of a property's valueDepending on the specific 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.Regardless, the appraised value is typically used 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. Here's what it all boils down to, an appraiser from Mitchell Appraisals will guarantee you get the most fair and balanced property value, so you can make the most informed real estate decisions.