Welcome to Holmgren Appraisals, LLC! As licensed appraisers, we have the knowledge and experience to provide dependable real estate value opinions that our clients can rely upon. With 38 years of experience in Residential and Commercial appraising, you can be sure you will receive a quality appraisal.
What is an Appraisal?
A home purchase is the largest, single investment most people will ever make. Whether it is a primary residence, a vacation home, or an investment property, the purchase of real property is a complex financial transaction that requires multiple parties to make it work.
Most people involved are very familiar. The Realtor is the most common face of the transaction. The mortgage company provides financial capital necessary to fund the transaction. The title company ensures that all aspects of the transaction are completed and that a clear title passes from seller to buyer.
So who makes sure the value of the property is in line with the amount being paid?
There are too many people exposed in the real estate process to let such a transaction proceed without ensuring that the value of the property is commensurate with the amount being paid. This is where the appraisal comes in.
An appraisal is an unbiased estimate of what a buyer might expect to pay or a seller receive for a parcel of real estate.
To be an informed seller or buyer, most people turn to a licensed, certified, professional appraiser to provide them with the most accurate estimate of the true value of their property.
So what goes into a real estate appraisal?
It all starts with an inspection. The 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 bathrooms and bedrooms, to ensure they exist and are in a condition a reasonable buyer would expect. The inspection often includes a sketch of the property, ensuring the proper square footage, and conveying the layout of the property. The appraiser must look for any obvious features or defects that would affect the value of the property.
Once the property has been inspected, an appraiser uses different approaches to determine the value of real property such as Cost Approach, Sales Comparison Approach, or Income Approach.
Cost Approach
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 subject being appraised. This value often sets the upper limit on what a property would sell for. Factors such as location and amenities are not usually reflected in the Cost Approach.
Sales Comparison Approach
Appraisers get to know the neighborhoods in which they work. They understand the value of certain features to the residents of that area. They know the traffic patterns, school zones, busy streets; and they use this information to determine which attributes of a property make a difference in the value. Then, the appraiser researches recent sales in the vicinity and finds properties that are comparable to the subject. The sale prices of these properties are used as a basis in the Sales Comparison Approach. These comparable sales, in most cases, must be adjusted for variables such as time of sale, location, functional utility, condition, and other physical and economic characteristics.
Income Approach
The Income Approach is a method of estimating the present value of the net income a property has the potential of producing, such as the case for a rental property or restaurant. This method reflects the premise that the higher the earnings the higher the value.
The Reconciliation
Combining information from these approaches as appropriate for the type of property appraised, the appraiser is then ready to stipulate an estimated market value. It is important to note that, while this amount is probably the best indication of worth, it may not be the final sale price. There are always factors such as seller motivation, urgency, or “bidding wars” that may adjust the final price of a property up or down. 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.
The bottom line: an appraiser will help you get the most accurate property value, so you can make the most informed real estate decisions.