Comprehending Appraisals

Purchasing real estate is the most important financial decision many will ever make. Whether it's a main residence, a seasonal vacation property or an investment, the purchase of real property is an involved financial transaction that requires multiple people working in concert to pull it all off.

Most people are familiar with the parties having a role in the transaction. The most familiar person in the transaction is the real estate agent. Next, the bank provides the money needed to fund the exchange. And ensuring all areas of the sale are completed and that a clear title passes to the buyer from the seller 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 value of the property is in line with 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 Loupe & Associates, LLC will ensure, you as an interested party, are informed.

The inspection is where an appraisal begins

Our first responsibility at Loupe & Associates, LLC is to inspect the property to ascertain its true status. We must see features hands on, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they really are there and are in the shape a typical person would expect them to be. The inspection often includes a sketch of the floorplan, ensuring the square footage is accurate and conveying the layout of the property. Most importantly, we identify any obvious amenities - or defects - that would have an impact on the value of the house.

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

Replacement Cost

This is where the appraiser uses information on local construction costs, labor rates and other factors to ascertain how much it would cost to construct a property comparable to the one being appraised. This value commonly sets the maximum on what a property would sell for. The cost approach is also the least used method.

Analyzing Comparable Sales

Appraisers are intimately familiar with the subdivisions in which they work. They innately understand the value of specific features to the people of that area. Then, the appraiser researches recent sales in the vicinity and finds properties which are 'comparable' to the real estate at hand. By assigning a dollar value to 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 property.

For example, if the comparable has an irrigation system and the subject doesn't, the appraiser may deduct the value of an irrigation system from the sales price of the comparable home.
However, 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. At Loupe & Associates, LLC, we are an authority in knowing the worth of real estate features in Baton Rouge and East Baton Rouge County neighborhoods. The sales comparison approach to value is typically given the most weight when an appraisal is for a real estate purchase.

Valuation Using the Income Approach

A third method of valuing approach to value is sometimes employed when a neighborhood has a measurable number of rental properties. In this scenario, the amount of income the real estate generates is factored in with other rents in the area for comparable properties to give an indicator of the current value.

Reconciliation

Examining the data from all applicable approaches, the appraiser is then ready to put down an estimated market value for the property at hand. Note: While the appraised value is probably the best indication of what a property is worth, it may not be the price at which the property closes. It'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'. 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 recover in the event they had to sell the property again. It all comes down to this, an appraiser from Loupe & Associates, LLC will help you attain the most fair and balanced property value, so you can make the most informed real estate decisions.