An Overview of AppraisalsA home purchase is the biggest transaction some people might ever consider. Whether it's where you raise your family, a seasonal vacation property or a rental fixer upper, the purchase of real property is a complex transaction that requires multiple parties to make it all happen.
The majority of the people participating are very familiar. The most recognizable entity in the transaction is the real estate agent. Then, the lender provides the financial capital required to finance the exchange. The title company ensures that all details of the transaction are completed and that the title is clear to pass to the buyer from the seller.
So what party makes sure the real estate is consistent with the purchase price? In comes the appraiser. We provide an unbiased opinion 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 Illinois licensed appraiser from Contreras & Associates will ensure you as an interested party are informed.
Appraisals begin with the home inspectionTo determine an accurate status of the property, it's our duty to first complete a thorough inspection. We must see features hands on, such as the number of bedrooms and bathrooms, the location, living areas, etc., to ensure they truly are there and are in the shape a reasonable person would expect them to be. The inspection often includes a sketch of the house, ensuring the square footage is proper and conveying the layout of the property. Most importantly, the appraiser identifies any obvious features - or defects - that would have an impact on the value of the house.
Back at the office, 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.
Replacement CostHere, the appraiser gathers information on local building costs, the cost of labor and other factors to figure out how much it would cost to replace the property being appraised. This estimate commonly sets the upper limit on what a property would sell for. It's also the least used method.
Paired Sales AnalysisAppraisers are intimately familiar with the neighborhoods in which they appraise. We thoroughly understand the value of specific features to the homeowners of that area. Then, the appraiser looks up recent transactions in the area and finds properties which are 'comparable' to the real estate being appraised. Using knowledge of the value of certain items such as upgraded appliances, additional 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.
Valuation Using the Income ApproachIn the case of income producing properties - rental houses for example - the appraiser may use an additional method of valuing a property. In this scenario, the amount of income the real estate produces is factored in with other rents in the area for comparable properties to derive the current value.
ReconciliationExamining the data from all applicable approaches, the appraiser is then ready to put down an estimated market value for the subject property. It is important to note that while this amount is probably the most accurate indication of what a property would sell for in an open market, it probably will not be the final sales price. Depending on the specific circumstances 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 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. Here's what it all boils down to: An appraiser from Contreras & Associates will help you attain the most accurate property value, so you can make wise real estate decisions.