New Home Appraisal – The 411
What is an appraisal?
A new home purchase is the largest, single investment most people will ever make. Whether it’s a primary residence, a second vacation home or an investment, the purchase of a new home – and deciding on a new home builder – is a complex financial transaction that requires multiple parties to pull it all off.
Most of the people involved are very familiar. A Realtor can be a common face during the transaction. As in our case, the Home Builder will provide a beautiful, customized new home just for you. The mortgage company provides the financial capital necessary to fund the transaction. The title company ensures that all aspects of the transaction are completed and that a clear title for your new home passes from the seller to the buyer.
So how do all parties ensure the value of the property is in line with the amount being financed? This is where the appraisal comes in. An appraisal should be an unbiased estimate of what a buyer might expect to pay – and a seller receive – for a parcel of real estate, where both buyer and seller are informed parties. To be an informed party, most people turn to a licensed, certified, professional appraiser to provide them with an estimate of the value of their property.
The Inspection
So what goes into a real estate appraisal? It starts with an inspection. An appraiser’s duty is to inspect the property to ascertain the 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 exist and are in the condition a reasonable buyer would expect them to be. The inspection often 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 home has been inspected, an appraiser uses two or three approaches to determine the value of real property: a cost approach, a sales comparison and, in the case of a rental property, an income approach.
Cost 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 home 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 or equal 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.
Sales Comparison
Instead, appraisers rely on the sales comparison approach to value these types of items. 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, the school zones, the busy throughways; and they use this information to determine which attributes of a property will make a difference in the value. Then, the appraiser researches recent new home sales in the vicinity and finds homes which are ”comparable” to the subject being appraised. The sales prices of these homes and new homes are used as a basis to begin the sales comparison approach.
Using knowledge of the value of certain items such as square footage, extra bathrooms, hardwood floors, fireplaces or view lots (just to name a few), the appraiser adjusts the comparable properties to more accurately portray the subject new home property. For example, if the comparable property has a fireplace and the subject does not, the appraiser may deduct the value of a fireplace from the sales price of the comparable home.
In the case of income producing properties – rental houses for example – the appraiser may use a third approach to valuing the property. In this case, the amount of income the property produces is used to arrive at the current value of those revenues over the foreseeable future.
Wading Through the Information
Combining information from all approaches, the appraiser is then ready to stipulate an estimated market value for the subject property (your new home!). It is important to note that while this amount is probably a close indication of what a property is worth, it may not be the final sales price. There are always mitigating factors such as motivation, desire, customization, urgency or ”bidding wars” that may adjust the final price up or down. But the appraised value is often used as a guideline. Because an appraisal is an estimate and there are various subjective measures, there are times where the professional opinion of more than one appraiser may be required. Neither party should panic. The bottom line is: an appraiser (or appraisers) will help provide all parties an estimated property value, so an informed real estate decision can be made.
The award-winning home builder, CornerStone Homes, builds one-of-a-kind new homes with outstanding quality craftsmanship and incomparable customer service. The builder has received accolades and high honors for its excellence in home building, customer satisfaction and community volunteerism. CornerStone Homes has received the coveted Grand Laurel Golden Service Award four years running.
CornerStone Homes builds its award-winning floor plans on privately owned home sites starting from $60 per square-foot. In addition, the company builds in the finest neighborhoods in Northeast Florida including Austin Park at Nocatee, Palencia, Payasada Estates, Eagle Landing, World Golf Village, MuraBella, Jacksonville Ranch Club, Sierra Oaks, Kensington, Hunter Oaks, Doctors Inlet Reserve, Eagle Harbor, and Rolling Hills.
