A Description of the Appraisal Process

A home purchase is the most significant investment most might ever make. It doesn't matter if a main residence, an additional vacation home or one of many rentals, purchasing real property is a detailed transaction that requires multiple parties to see it through.

You're probably familiar with the parties having a role in the transaction. The real estate agent is the most recognizable face in the exchange. Next, the mortgage company provides the financial capital necessary to bankroll the exchange. And the title company sees to it that all requirements of the transaction are completed and that the title is clear to transfer from the seller to the purchaser.

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

So, who makes sure the property 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 parcel of real estate, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from LCM Associates, LLC will ensure, you as an interested party, are informed.

Inspecting the subject property

To determine an accurate status of the property, it's our duty to first complete a thorough inspection. We must actually see features, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they truly exist and are in the shape a typical person would expect them to be. To ensure the stated size of the property has not been misrepresented and illustrate the layout of the property, the inspection often requires creating a sketch of the floorplan. Most importantly, we identify any obvious amenities - or defects - that would have an impact on the value of the house.

Once the site has been inspected, 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.

Replacement Cost

Here, we use information on local building costs, labor rates and other elements to ascertain how much it would cost to construct a property comparable to the one being appraised. This figure often sets the maximum on what a property would sell for. The cost approach is also the least used method.

Sales Comparison

Appraisers get to know the communities in which they work. They thoroughly understand the value of particular features to the homeowners of that area. Then, the appraiser researches recent sales in the neighborhood and finds properties which are 'comparable' to the property at hand. 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 adjust the comparable properties so that they are more accurately in line with the features of subject.

  • Say, 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.
  • 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 knowing the true value of features of homes in Montville and Morris, LCM Associates, LLC can't be beat. The sales comparison approach to value is typically awarded the most importance 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 - the appraiser may use an additional approach to value. In this situation, the amount of revenue the real estate yields is factored in with other rents in the area for comparable properties to give an indicator of the current value.

Reconciliation

Combining information from all approaches, the appraiser is then ready to state an estimated market value for the subject property. The estimate of value at the bottom of the appraisal report is not necessarily 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'. But 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 LCM Associates, LLC will help you discover the most fair and balanced property value, so you can make wise real estate decisions.