Understanding the Appraisal Process

Their home's purchase is the most serious financial decision some could ever consider. It doesn't matter if a primary residence, an additional vacation home or one of many rentals, the purchase of real property is an involved financial transaction that requires multiple parties to see it through.

Practically all the parties participating are quite familiar. The real estate agent is the most known face in the transaction. Then, the mortgage company provides the financial capital required to finance the exchange. And ensuring all details of the transaction are completed and that a clear title passes from the seller to the buyer is the title company.

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So, what party makes sure the value of the real estate is in line with the amount being paid? 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 licensed, certified, professional appraiser from Certified Residential Appraisal, Inc. will ensure, you as an interested party, are informed.

The inspection is where an appraisal begins

Our first duty at Certified Residential Appraisal, Inc. is to inspect the property to determine its true status. 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 reasonable buyer would expect them to be. To ensure the stated square footage has not been misrepresented and convey the layout of the home, the inspection often entails creating a sketch of the floorplan. Most importantly, we look for any obvious features - or defects - that would affect the value of the property.

Following the inspection, we use two or three approaches to determining the value of real property: a sales comparison, a replacement cost calculation, and an income approach when rental properties are prevalent.

Cost Approach

This is where the appraiser gathers information on local building costs, labor rates and other elements to calculate how much it would cost to replace the property being appraised. This estimate commonly sets the maximum on what a property would sell for. It's also the least used predictor of value.

Paired Sales Analysis

Appraisers can tell you a lot about the neighborhoods in which they work. They innately understand the value of particular features to the homeowners of that area. Then, the appraiser researches recent transactions in the vicinity and finds properties which are 'comparable' to the real estate in question. By assigning a dollar value to certain items such as square footage, extra bathrooms, hardwood floors, fireplaces or view lots (just to name a few), we adjust the comparable properties so that they more accurately portray the features of subject.

If, for example, the comparable has a fireplace and the subject does not, the appraiser may subtract the value of a fireplace from the sales price of the comparable.
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.

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 knowing the true worth of features of homes in Oak Forest and Cook, Certified Residential Appraisal, Inc. is second to none. This approach to value is usually awarded the most consideration when an appraisal is for a real estate sale.

Valuation Using the Income Approach

A third way of valuing a property is sometimes applied when a neighborhood has a measurable number of rental properties. In this case, the amount of revenue the property yields is taken into consideration along with other rents in the area for comparable properties to determine the current value.

Putting It All Together

Combining information from all approaches, the appraiser is then ready to stipulate an estimated market value for the subject property. The estimate of value on the appraisal report is not necessarily the final sales price even though it is likely the best indication of a property's valueIt'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 employed as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. The bottom line is, an appraiser from Certified Residential Appraisal, Inc. will help you discover the most accurate property value, so you can make wise real estate decisions.

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