Understanding Appraisals
A home purchase can be the largest transaction some might ever encounter. Whether it’s a primary residence, an additional vacation property or a rental fixer upper, purchasing real property is a complex financial transaction that requires multiple parties to pull it all off.
Next, the mortgage company provides the money required to fund the transaction. Ensuring all aspects of the transaction are complete an that a clear title passes from the seller to the buyer.
So who makes sure the property is consistent with the purchase price? In comes the appraiser. We provide an unbiased estimate of what a buyer might expect to pay – or a seller receive – for a parcel of real estate, where both buyer and seller are informed parties. A professional Ontario appraiser from Everest Appraisal Services will ensure you as an interested party are informed.
Appraisals begin with the home inspection
Our first task at Everest Appraisal Services is to inspect the property to determine its true status. We must actually see aspects of the property, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they truly are there and are in the shape a typical person would expect them to be. To ensure the stated size of the property is accurate and illustrate the layout of the property, the inspection often entails creating a sketch of the floor plan. Most importantly, we look for any obvious amenities – or defects – that would affect the value of the house.
Back at the office, an appraiser employs two or three approaches when determining the value of real property: a sales comparison, a replacement cost calculation, and an income approach when rental properties are prevalent.
Replacement Cost
This is where the appraiser uses information on local building costs, labor rates and other elements to derive how much it would cost to construct a property comparable to the one 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.
Sales Comparison
Appraisers get to know the communities in which they work. We innately understand the value of particular features to the homeowners of that area. Then, the appraiser researches recent transactions in close proximity to the subject 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 add or subtract from each comparable’s sales price so that they are more accurately in line with the features of subject.
- Say, for example, the comparable has a swimming pool and the subject does not, the appraiser may deduct the value of a swimming pool from the sales price of the comparable home.
- 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.
At Everest Appraisal Services, we are an authority when it comes to knowing the value of real estate features in Ajax and surrounding neighborhoods. This approach to value is most often awarded the most weight when an appraisal is for a home exchange.
Valuation Using the Income Approach
A third way of valuing approach to value is sometimes employed when a neighborhood has a reasonable number of renter occupied properties. In this case, the amount of income the property yields is taken into consideration along with income produced by neighboring properties to determine the current value.
The Bottom Line
Combining information from all approaches, the appraiser is then ready to document an estimated market value for the subject property. It is important to note that while the appraised value is probably the most accurate indication of what a property would sell for in an open market, it may not be the price at which the property closes. There are always mitigating factors such as the seller’s desire to get out of the property, urgency or ‘bidding wars’ that may adjust an offer or listing price up or down. Regardless, the appraised value is typically employed 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. At the end of the day: An appraiser from Everest Appraisal Services will guarantee you attain the most accurate property value, so you can make the most informed real estate decisions.