An Overview of the Appraisal Process

Their home's purchase can be the most significant financial decision most people will ever encounter. It doesn't matter if a primary residence, an additional vacation home or an investment, the purchase of real property is a detailed financial transaction that requires multiple parties to see it through.

Practically all the people participating are quite familiar. The real estate agent is the most known entity in the transaction. Then, the bank provides the financial capital needed to bankroll the transaction. And ensuring all requirements of the transaction are completed and that the title is clear to pass to the buyer from the seller is the title company.

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So, what party makes sure the value of the real estate is consistent with the purchase price? In comes the appraiser. We provide an unbiased opinion 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. A licensed, certified, professional appraiser from Richard Ward will ensure, you as an interested party, are informed.

Inspecting the subject property

Our first task at Richard J. Ward & Associates is to inspect the property to determine its true status. We must see aspects of the property hands on, such as the number of bedrooms and bathrooms, the location, living areas, etc., to ensure they really are present and are in the shape a reasonable buyer would expect them to be. To ensure the stated size of the property is accurate and describe the layout of the property, the inspection often requires creating a sketch of the floorplan. Most importantly, we identify any obvious features - or defects - that would have an impact on the value of the property.

Following 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.

Replacement Cost

Here, the appraiser gathers information on local construction costs, labor rates and other elements to ascertain how much it would cost to build a property comparable to the one being appraised. This figure often sets the upper limit on what a property would sell for. The cost approach is also the least used method.

Paired Data Analysis

A quantitative technique used to identify and measure adjustments to the sale prices or rents of comparable properties. To apply this technique, sales or rental data on nearly identical properties, or adjusted data, is compared to isolate and estimate a characteristic's effect on value or rent. often referred to as paired sales analysis.
(Source: The Appraisal Institute, Teh Dictionary of Real Estate Appraisal, Chicago, Illinois, c.2015, p.167)

For example, if the comparable property has an additional feature that the subject does not, such as an extra half bathroom, the appraiser must determine the contributory value of this feature if any and adjust the price of the comparable accordingly.

After all differences have been accounted for, the appraiser reconciles the adjusted sale prices of all the comparables utilized and then derives an opinion of market value. At Richard J. Ward & Associates, we are experts when it comes to knowing the worth of particular items in Old Bridge and Middlesex County neighborhoods. The sales comparison approach to value is typically given the most importance when an appraisal is for a home purchase.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - we may use an additional way of valuing a house. In this situation, the amount of income the property generates is factored in with income produced by similar properties to determine the current value.

Determining The Final Opinion Value

Analyzing the data from all approaches, the appraiser is then ready to put down an estimated market value for the property in question. It is important to note that while the appraised value is probably the strongest indication of what a property is worth, it probably will not be the price at which the property closes. There are always mitigating factors such as seller motivation, urgency or 'bidding wars' that may adjust an offer or listing 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 than they could get back in case they had to put the property on the market again. At the end of the day, an appraiser from Richard Ward will guarantee you attain the most accurate property value, so you can make the most informed real estate decisions.