Understanding Appraisals

A home purchase can be the most important investment many people could ever make. Whether it's where you raise your family, a seasonal vacation property or an investment, purchasing real property is a detailed transaction that requires multiple parties to make it all happen.

Most of the participants are very familiar. The most known entity in the transaction is the real estate agent. Next, the bank provides the money required to finance the transaction. The title company sees to it that all requirements of the sale are completed and that the title is clear to pass from the seller to the purchaser.

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So, who's responsible for making sure the real estate is worth the purchase price? This is where the appraiser comes in. We provide an unbiased opinion of what a buyer could expect to pay — or a seller receive — for a property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Hagan Real Estate, Inc. will ensure, you as an interested party, are informed.

Inspecting the subject property

To determine the true status of the property, it's our responsibility to first conduct a thorough inspection. We must actually see features, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they truly exist and are in the condition a reasonable person would expect them to be. To ensure the stated size of the property is accurate and document the layout of the home, the inspection often requires creating a sketch of the floorplan. Most importantly, the appraiser identifies any obvious amenities - or defects - that would affect the value of the house.

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.

Cost Approach

Here, the appraiser uses information on local building costs, labor rates and other elements to figure out how much it would cost to replace the property being appraised. This figure commonly sets the upper limit on what a property would sell for. It's also the least used method.

Paired Sales Analysis

Appraisers get to know the neighborhoods in which they appraise. They innately understand the value of specific features to the homeowners of that area. Then, the appraiser looks up recent transactions in the area and finds properties which are 'comparable' to the subject being appraised. 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 add or subtract from each comparable's sales price so that they are more accurately in line with the features of subject.

  • For example, if the comparable property has a fireplace and the subject doesn't, the appraiser may subtract the value of a fireplace from the sales price of the comparable.
  • However, if the subject has an extra half-bathroom and the comparable does not, the appraiser might add a certain amount to the comparable property.

After all differences have been accounted for, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At Hagan Real Estate, Inc., we are an authority when it comes to knowing the value of real estate features in Cullman and Cullman County neighborhoods. The sales comparison approach to value is usually awarded the most weight when an appraisal is for a home exchange.

Valuation Using the Income Approach

A third method of valuing approach to value is sometimes employed when an area has a measurable number of renter occupied properties. In this situation, the amount of revenue the real estate generates is taken into consideration along with other rents in the area for comparable properties to determine the current value.

Coming Up With The Final Value

Combining information from all applicable approaches, the appraiser is then ready to put down an estimated market value for the property at hand. The estimate of value on the appraisal report is not always what's being paid for the property even though it is likely the best indication of a property's valueDepending on the individual circumstances of the buyer or seller, their level of urgency or a buyer's desire for that exact property, the closing price of a home can always be driven up or down.Regardless, the appraised value is often employed as a guideline for lenders who don't want to loan a buyer more money than they could get back in the event they had to sell the property again. At the end of the day, an appraiser from Hagan Real Estate, Inc. will help you get the most accurate property value, so you can make the most informed real estate decisions.