Decoding the Appraisal Process

A home purchase can be the most important investment most will ever make. Whether it's a primary residence, an additional vacation property or one of many rentals, the purchase of real property is a detailed financial transaction that requires multiple parties to pull it all off.

You're likely to be 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 money needed to bankroll the exchange. And ensuring all requirements of the transaction are completed and that a clear title transfers to the buyer from the seller is the title company.

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So, what party makes sure the real estate is worth the purchase price? This is where you meet 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 Carolina Home Valuations LLC 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 duty to first perform a thorough inspection. We must physically see aspects of the property, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they indeed exist and are in the shape a typical buyer would expect them to be. The inspection often includes a sketch of the property, ensuring the square footage is proper and illustrating the layout of the property. Most importantly, the appraiser identifies any obvious features - or defects - that would affect the value of the property.

Back at the office, an appraiser uses two or three approaches to determining the value of the property: paired sales analysis and, in the case of a rental property, an income approach.

Cost Approach

Here, we gather information on local construction costs, labor rates and other factors to ascertain how much it would cost to build a property similar to the one being appraised. This value usually sets the maximum 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 subdivisions in which they work. They innately understand the value of certain features to the people of that area. Then, the appraiser researches recent transactions in the vicinity and finds properties which are 'comparable' to the property in question. Using knowledge of the value of 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 property.

For example, if the comparable property has a storm shelter and the subject does not, the appraiser may subtract the value of a storm shelter from the sales price of the comparable home.
But, in the case where the subject has something such as an extra half bath that a comparable doesn't have, the appraiser might add the value of that bath to the comparable property.

An opinion of what the subject could 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 Charlotte and Mecklenburg, Carolina Home Valuations LLC can't be beat. This approach to value is typically awarded the most consideration when an appraisal is for a real estate exchange.

Valuation Using the Income Approach

A third method of valuing real estate is sometimes employed when a neighborhood has a measurable number of renter occupied properties. In this scenario, the amount of income the real estate generates is factored in with income produced by similar properties to derive the current value.

Arriving at a Value Conclusion

Analyzing the data from all applicable approaches, the appraiser is then ready to stipulate an estimated market value for the property at hand. The estimate of value on the appraisal report is not always the final sales price even though it is likely the best indication of what a property is worth. Prices can always be driven up or down by extenuating circumstances like the motivation or urgency of a seller or 'bidding wars'. 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 get back in case they had to put the property on the market again. It all comes down to this, an appraiser from Carolina Home Valuations LLC will help you get the most accurate property value, so you can make wise real estate decisions.