An Overview of the Appraisal ProcessPurchasing real estate can be the most important financial decision many could ever encounter. It doesn't matter if it's a primary residence, a seasonal vacation property or an investment, purchasing real property is an involved financial transaction that requires multiple people working in concert to see it through.
Most people are familiar with the parties taking part in the transaction. The most known person in the transaction is the real estate agent. Next, the bank provides the money necessary to finance the exchange. The title company makes sure that all aspects of the sale are completed and that a clear title passes from the seller to the purchaser.
So who's responsible for making sure the real estate is consistent with the amount being paid? This is where you meet 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 professional Indiana licensed appraiser from B.A. Dwenger Appraisals, LLC will ensure you as an interested party are informed.
The inspection is where an appraisal startsOur first duty at B.A. Dwenger Appraisals, LLC is to inspect the property to ascertain its true status. We must actually see features, 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 buyer would expect them to be. To ensure the stated square footage is accurate and describe the layout of the property, the inspection often entails creating a sketch of the floor plan. Most importantly, the appraiser looks for any obvious features - or defects - that would affect the value of the house.
After the inspection, we use two or three approaches when determining the value of the property: a paired sales analysis, a replacement cost calculation, and an income approach when rental properties are prevalent.
Cost ApproachHere, we pull information on local construction costs, labor rates and other factors to derive how much it would cost to replace the property being appraised. This estimate commonly sets the maximum on what a property would sell for. The cost approach is also the least used predictor of value.
Paired Sales AnalysisAppraisers get to know the neighborhoods in which they work. We thoroughly understand the value of specific 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 subject at hand. By assigning a dollar value to certain items such as upgraded appliances, additional bathrooms, an additional living area, quality of construction, lot size, we add or subtract from each comparable's sales price so that they more accurately portray the features of subject.
Valuation Using the Income ApproachIn the case of income producing properties - rental houses for example - the appraiser may use an additional way of valuing real estate. In this situation, the amount of revenue the property yields is factored in with income produced by neighboring properties to determine the current value.
ReconciliationExamining the data from all applicable approaches, the appraiser is then ready to state an estimated market value for the property in question. The estimate of value at the bottom of the appraisal report is not always what's being paid for the property even though it is likely the best indication of what a property could sell for in an open market. It's not uncommon for prices to be driven up or down by extenuating circumstances like the motivation or urgency of a seller or 'bidding wars'. But the appraised value is often employed as a guideline for lenders who don't want to loan a buyer more money than they could get back in the event they had to put the property on the market again. At the end of the day: An appraiser from B.A. Dwenger Appraisals, LLC will help you get the most accurate property value, so you can make profitable real estate decisions.