Real Property Appraisals: A Primer

Their home's purchase is the most serious transaction many people may ever make. It doesn't matter if a main residence, a second vacation property or an investment, the purchase of real property is a complex financial transaction that requires multiple people working in concert to pull it all off.

Most of the participants are very familiar. The most recognizable face in the transaction is the real estate agent. Next, the lender provides the money required to finance the transaction. And ensuring all aspects of the exchange are completed and that the title is clear to transfer from the seller to the purchaser is the title company.

To learn more about appraising, click here to see a short video or call us today to talk about your specific property.

So, what party makes sure the real estate is worth the amount being paid? In comes the appraiser. 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 James Minaya & Company will ensure, you as an interested party, are informed.

The inspection is where an appraisal starts

Our first duty at James Minaya & Company is to inspect the property to determine its true status. We must physically see features, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they truly exist and are in the shape a typical person would expect them to be. The inspection often includes a sketch of the property, ensuring the square footage is accurate and conveying the layout of the property. Most importantly, the appraiser identifies any obvious features - or defects - that would affect the value of the property.

After the inspection, an appraiser uses two or three approaches to determining the value of the property: sales comparison and, in the case of a rental property, an income approach.

Cost Approach

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

Sales Comparison

Appraisers become very familiar with the communities in which they appraise. They innately understand the value of specific features to the homeowners of that area. Then, the appraiser researches recent transactions in the area and finds properties which are 'comparable' to the property being appraised. Using knowledge of the value of certain items such as remodeled rooms, types of flooring, energy efficient items, patios and porches, or additional storage space, we adjust the comparable properties so that they are more accurately in line with the features of subject property.

  • Say, for example, the comparable property has an extra half bath that the subject doesn't, the appraiser may deduct the value of that half bath from the sales price of the comparable home.
  • If the subject has an extra half-bathroom and the comparable does not, the appraiser might add an amount to the comparable property.

A true estimate of what the subject might 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 Montvale and Bergen, James Minaya & Company can't be beat. This approach to value is typically given the most importance when an appraisal is for a real estate exchange.

Valuation Using the Income Approach

A third way of valuing approach to value is sometimes used when a neighborhood has a reasonable number of rental properties. In this scenario, the amount of revenue the real estate generates is factored in with other rents in the area for comparable properties to determine the current value.

Reconciliation

Examining the data from all approaches, the appraiser is then ready to stipulate an estimated market value for the property at hand. Note: While the appraised value is probably the most accurate indication of what a house is worth, it probably will not be the final sales price. There are always mitigating factors such as seller motivation, urgency or 'bidding wars' that may adjust the final price up or down. 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 case they had to put the property on the market again. At the end of the day, an appraiser from James Minaya & Company will help you discover the most accurate property value, so you can make profitable real estate decisions.