What Is an Appraisal?
Buying real estate is the most serious financial decision most people will ever consider. It doesn't matter if a primary residence, a second vacation property or a rental fixer upper, purchasing real property is a complex transaction that requires multiple parties to see it through.
The majority of the participants are very familiar. The most known entity in the transaction is the real estate agent. Then, the bank provides the money required to finance the deal. And the title company sees to it that all details of the exchange are completed and that a clear title passes from the seller to the buyer.
So, what party is responsible for making sure the real estate is worth the purchase price? This is where you meet the appraiser. We provide an unbiased estimate of what a buyer could expect to pay — or a seller receive — for a parcel of real estate, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from The PJC Group, LLC. will ensure, you as an interested party, are informed.
Inspecting the subject property
To ascertain an accurate status of the property, it's our responsibility to first conduct a thorough inspection. We must see aspects of the property first hand, such as the number of bedrooms and bathrooms, the location, amenities, etc., 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 has not been misrepresented and describe the layout of the house, the inspection often requires creating a sketch of the floorplan. Most importantly, the appraiser looks for any obvious amenities - or defects - that would have an impact on the value of the house.
After the inspection, we use two or three approaches to determining the value of the property: a paired sales analysis, a replacement cost calculation, and an income approach when rental properties are prevalent.
This is where we use information on local construction costs, the cost of labor and other factors to derive how much it would cost to build a property similar to the one being appraised. This estimate commonly sets the maximum on what a property would sell for. The cost approach is also the least used method.
Appraisers can tell you a lot about the subdivisions in which they appraise. They thoroughly understand the value of particular features to the homeowners of that area. Then, the appraiser researches recent sales 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 fireplaces, room layout, appliance upgrades, extra bathrooms or bedrooms, or quality of construction, we add or subtract from each comparable's sales price so that they are more accurately in line with the features of subject property.
An opinion of what the subject could sell for can only be determined once all differences between the comps and the subject have been evaluated. At The PJC Group, LLC., we are experts in knowing the value of particular items in Wilmette and Cook County neighborhoods. This approach to value is usually given the most consideration when an appraisal is for a real estate purchase.
Valuation Using the Income Approach
A third method of valuing a property is sometimes used when a neighborhood has a reasonable number of renter occupied properties. In this case, 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.
Arriving at a Value Conclusion
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 necessarily what's being paid for the property even though it is likely the best indication of what a property is worth. 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'. Regardless, the appraised value is often used as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. At the end of the day, an appraiser from The PJC Group, LLC. will guarantee you discover the most fair and balanced property value, so you can make the most informed real estate decisions.