Understanding Appraisals

Buying a home can be the most significant financial decision most people might ever consider. It doesn't matter if where you raise your family, an additional vacation home or an investment, the purchase of real property is a complex transaction that requires multiple people working in concert to see it through.

The majority of the parties involved are very familiar. The most familiar face in the exchange is the real estate agent. Then, the mortgage company provides the money necessary to bankroll the transaction. The title company makes sure that all details of the sale are completed and that a clear title passes to the buyer from the seller.

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So, what party makes sure the value of the real estate is consistent with the purchase price? This is where the appraiser comes in. 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 Bullard Appraisals, Inc. will ensure, you as an interested party, are informed.

The inspection is where an appraisal starts

To ascertain an accurate status of the property, it's our duty to first complete 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 really are present and are in the shape a typical buyer would expect them to be. The inspection often includes a sketch of the house, ensuring the square footage is proper and illustrating the layout of the property. Most importantly, the appraiser identifies any obvious amenities - or defects - that would affect the value of the house.

Back at the office, an appraiser uses two or three approaches to determining the value of the property: a sales comparison, a replacement cost calculation, and an income approach when rental properties are prevalent.

Cost Approach

Here, we gather information on local building costs, labor rates and other elements to calculate how much it would cost to replace the property being appraised. This value usually sets the upper limit on what a property would sell for. It's also the least used predictor of value.

Analyzing Comparable Sales

Appraisers get to know the neighborhoods in which they work. They innately understand the value of specific features to the people of that area. Then, the appraiser looks up recent sales in close proximity to the subject and finds properties which are 'comparable' to the real estate being appraised. By assigning a dollar value to certain items such as upgraded appliances, extra bathrooms, 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.

For example, if the comparable property has a fireplace and the subject doesn't, the appraiser may deduct the value of a fireplace from the sales price of the comparable home.
If the subject property has an extra half-bathroom and the comparable does not, the appraiser might add a certain amount to the comparable 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. When it comes to putting a value on features of homes in Pinehurst and Moore, Bullard Appraisals, Inc. can't be beat. This approach to value is commonly given the most weight when an appraisal is for a real estate sale.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - we may use an additional way of valuing real estate. 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 document an estimated market value for the property in question. It is important to note that while the appraised value is probably the strongest indication of what a property is worth, it probably will not be the price at which the property closes. 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'. Regardless, the appraised value is often used as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. It all comes down to this, an appraiser from Bullard Appraisals, Inc. will help you get the most accurate property value, so you can make wise real estate decisions.