Sales Comparison and Adjusting values in an appraisal
The best appraisals need to have the CORRECT comps in order to come up with the right value. The best criteria is: within a few hundred sq ft from the subject size, within 10 years age +/- from the subject
property, within 1 mile, and of course within the past 6 months sale date. Values depend on the upgrades, and upon receiving a real order, I'll ask about the property regarding the items that add value over other sales.
Condition items that affect value are: Does it have a granite kitchen or updated kitchen, new appliances, updated bath, dual pane windows, a/c, fireplace(s), pool/spa, new flooring (hardwood laminate or new carpeting are all "new flooring"), view, permitted sunroom or permitted sq ft, number of garage spaces, and fresh paint inside and out?
Items that dont increase value as much: New roof, new furnace, landscaping, closet organizers,
non permitted additions, non permitted studios on the same lot, outbuildings such as sheds
So what goes into a real estate appraisal? It all starts with the inspection. An appraiser's duty is to inspect the property being appraised to ascertain the true status of that property. The appraiser must actually see features, such as the number of bedrooms, bathrooms, the location, and so on, to ensure that they really exist and are in the condition a reasonable buyer would expect them to be. The inspection includes a sketch of the property, ensuring the proper square footage and conveying the layout of the property. Most importantly, the appraiser looks for any obvious features - or defects - that would affect the value of the house.
Once the site has been inspected, an appraiser uses two or three approaches to determining the value of real property: a cost approach, a sales comparison and, in the case of a rental property, an income approach.
The cost approach is the easiest to understand. The appraiser uses information on local building costs, labor rates and other factors to determine how much it would cost to construct a property similar to the one being appraised. This value often sets the upper limit on what a property would sell for. Why would you pay more for an existing property if you could spend less and build a brand new home instead? While there may be mitigating factors, such as location and amenities, these are usually not reflected in the cost approach. The dollar per square foot is different in the Cost Approach than it is for Hazard Insurance, and using an appraisal's Cost Approach may result in the property being insured for an incorrect amount.
Combining information from all approaches, the appraiser is then ready to stipulate an estimated market value for the subject property. It is important to note that while this amount is probably the best indication of what a property is worth, it may not be the final sales price. There are always mitigating factors such as seller motivation, urgency or ''bidding wars'' that may adjust the final price up or down. But the appraised value is often used as a guideline for lenders who don't want to loan a buyer more money that the property is actually worth. The bottom line is: an appraiser will help you get the most accurate property value, so you can make the most informed real estate decisions and its not always about "hitting a value" if it means you overpay on a purchase price that is too high.