Understanding the Appraisal Process

Acquiring real estate can be the largest financial decision some people might ever consider. Whether it's where you raise your family, a second vacation property or a rental fixer upper, purchasing real property is a complex financial transaction that requires multiple people working in concert to pull it all off.

Most of the people involved are very familiar. The real estate agent is the most familiar person in the transaction. Then, the lender provides the financial capital required to bankroll the transaction. And the title company ensures that all aspects of the sale are completed and that a clear title passes to the buyer from the seller.

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So, what party is responsible for making sure the real estate is worth the amount being paid? This is where you meet the appraiser. We provide an unbiased opinion 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 Buyers Brokerage & Certified Appraisals, Inc will ensure, you as an interested party, are informed.

The inspection is where an appraisal starts

Our first task at Buyers Brokerage & Certified Appraisals, Inc is to inspect the property to ascertain its true status. We must physically see aspects of the property, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they truly exist and are in the shape a reasonable buyer would expect them to be. To make sure the stated size of the property is accurate and convey the layout of the house, the inspection often includes creating a sketch of the floorplan. Most importantly, we look for any obvious features - or defects - that would have an impact on the value of the house.

Following the inspection, we use two or three approaches to determining the value of the property: paired sales analysis and, in the case of a rental property, an income approach.

Cost Approach

This is where we gather information on local construction costs, the cost of labor and other elements to ascertain how much it would cost to replace the property being appraised. This figure often sets the maximum on what a property would sell for. The cost approach is also the least used predictor of value.

Sales Comparison

Appraisers get to know the neighborhoods in which they work. They thoroughly understand the value of particular features to the people of that area. Then, the appraiser researches recent transactions in the vicinity and finds properties which are 'comparable' to the real estate at hand. By assigning a dollar value to certain items such as upgraded appliances, additional bathrooms, additional living area, quality of construction, lot size, we add or subtract from each comparable's sales price so that they are more accurately in line with the features of subject.

  • For example, if the comparable property has an extra half bath that the subject doesn't, the appraiser may deduct the value of that half bath from the sales price of the comparable.
  • However, 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.

After all differences have been accounted for, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. When it comes to knowing the true worth of features of homes in Broadway and Rockingham, Buyers Brokerage & Certified Appraisals, Inc can't be beat. This approach to value is commonly awarded the most importance when an appraisal is for a real estate sale.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - we may use a third way of valuing a house. In this case, the amount of income the real estate produces is taken into consideration along with income produced by comparable properties to give an indicator of the current value.

The Bottom Line

Analyzing the data from all approaches, the appraiser is then ready to stipulate an estimated market value for the property at hand. Note: While this amount is probably the best indication of what a house is worth, it probably will not be the final sales price. 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'. But 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 Buyers Brokerage & Certified Appraisals, Inc will guarantee you get the most accurate property value, so you can make profitable real estate decisions.