A real estate purchase is typically the single largest investment most people will ever make. Whether it's a primary residence, a second vacation home or an investment, the purchase of real property is a complex transaction that requires multiple parties to complete.
Most of the parties involved in a typical transaction are similar. A Realtor is usally involved in marketing the property. A bank, credit union, or mortgage company typically provides the financial capital necessary to fund the transaction. The title company is there to ensure that all aspects of the transaction are completed and that a clear title passes from the seller to the buyer.
So who makes sure the value of the property is in line with the amount being paid? There are too many parties involved in real estate transactions to allow them proceed without ensuring that the value of the property is commensurate with the amount being paid.
This is where the appraisal comes in. An appraisal is 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. To be an informed party, most people turn to a licensed, certified, professional real estate appraiser to provide them with an accurate estimate of the market value of their property.
The Inspection
So what goes into a real estate appraisal? It all starts with the inspection. An appraiser's responsibility is to inspect the property being appraised to ascertain the true status of that property. This includes everything from the number of bedrooms and bathrooms in the property, the fixtures, finishes, and condition, as well as the layout of the property, the type of construction, the condition of the exterior, and the location of the property to ensure that value conclusion arrived at is appropriate for the property and the neighborhood. Most importantly, the appraiser looks for any obvious features - or defects - that would affect the value of the house.
The Report
Once the property has been inspected, an appraiser uses up to three approaches in determining the market value of the property: the cost approach, the sales comparison and, in the case of a rental property, the income approach. Each approach utilized should include current data specific to the subject's property type and market area. The report usually includes a sketch of the property to show the approximate square footage as well as to convey the general layout of the property.
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