The following are key factors that help determine your home’s market value in Cedar Rapids and surrounding areas.
Purchasing a home is often the largest financial decision most people may ever make. Whether it’s a main residence, a seasonal vacation home or an investment, purchasing real property is a complex financial transaction that requires multiple parties to see it through.
Most of the people involved in the transaction are familiar. The real estate agent is the best known entity in the exchange. Next, a bank, credit union or mortgage broker provides the money necessary to bankroll the transaction. The title company makes sure that all details of the exchange are completed and that a clear title passes to the buyer from the seller.
So, which party is engaged to make sure the value of the real estate is consistent with the purchase price? That’s right – the appraiser!. We provide an unbiased estimate of what a buyer could expect to pay — or a seller receive — for a property, where both buyer and seller are informed parties. This is referred to as an arms-length transaction.
A certified professional appraisal from RK Roy Appraisals will ensure that you, as aninterested party, are informed.
The inspection is where an appraisal starts
To ascertain an accurate status of the property, it’s our duty to first complete a thorough inspection. We must see aspects of the property first hand, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they truly are there and are in the condition a typical buyer would expect them to be. To make sure the stated size of the property has not been misrepresented and convey the layout of the home, the inspection often entails creating a sketch of the floor plan. Most importantly, the appraiser looks for any obvious features – 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: sales comparison and, in the case of a rental property, an income approach.
Cost Approach
This is where the appraiser uses information on local building costs, the cost of labor and other factors to figure out how much it would cost to replace the property being appraised. This value commonly sets the upper limit on what a property would sell for. The cost approach is also the least used predictor of value. This approach is more typically used in evaluating newer homes.
Sales Comparison
Appraisers can tell you a lot about the neighborhoods in which they appraise. They innately understand the value of specific features to the residents of that area. Then, the appraiser looks up recent sales in close proximity to the subject and finds properties which are ‘comparable’ to the real estate 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 adjust the comparable properties so that they are more accurately in line with the features of subject.
- For example, if the comparable has a fireplace and the subject does not, the appraiser may subtract the value of a fireplace from the sales price of the comparable home.
- But, in the case where the subject has something such as an extra half bath that a comparable doesn’t have, the appraiser might add the value of that bath to the
comparable property.
A valid 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 RK Roy Appraisals, we are an authority when it comes to knowing the value of real estate features in Cedar Rapids and Linn, Benton and Jones County neighborhoods. The sales comparison approach to value is commonly given the most consideration when an appraisal is for a home sale.
Income Approach
In the case of income producing properties – rental houses for example – the appraiser may use a third approach to value. In this situation, the amount of revenue the real estate generates is factored in with income produced by similar properties to give an indicator of the current value.
Arriving at a Value Conclusion
Examining the data from all approaches, the appraiser is then ready to stipulate an estimated market value for the property in question. 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. There are always mitigating factors such as the seller’s desire to get out of the property, 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 recover in the event they had to sell the property again. At the end of the day, an appraiser from RK Roy Appraisals will help you discover the most accurate property value so you can make profitable real estate decisions.