Home Appraisals: A Primer

Purchasing a home is the biggest financial decision most of us could ever consider. Whether it's a main residence, a second vacation property or an investment, purchasing real property is a detailed transaction that requires multiple people working in concert to see it through.

Most people are familiar with the parties having a role in the transaction. The most familiar entity in the transaction is the real estate agent. Next, the lender provides the financial capital necessary to fund the deal. And ensuring all areas of the transaction are completed and that the title is clear to transfer to the buyer from the seller is the title company.

To learn more about appraising, click here to see a short video or call us today to talk about your specific property.

So, what party is responsible for making sure the value of the property 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 Advanced Appraisals will ensure, you as an interested party, are informed.

Inspecting the subject property

Our first duty at Advanced Appraisals is to inspect the property to ascertain its true status. We must see features hands on, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they indeed are there and are in the condition a reasonable person would expect them to be. The inspection often includes a sketch of the floorplan, ensuring the square footage is correct and illustrating the layout of the property. Most importantly, the appraiser identifies any obvious amenities - or defects - that would affect the value of the property.

Once the site has been inspected, an appraiser uses two or three approaches to determining the value of real property: a sales comparison, a replacement cost calculation, and an income approach when rental properties are prevalent.

Cost Approach

Here, the appraiser pulls information on local building costs, labor rates 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. It's also the least used method.

Sales Comparison

Appraisers can tell you a lot about the neighborhoods in which they work. They innately understand the value of certain features to the people of that area. Then, the appraiser looks up recent transactions in close proximity to the subject and finds properties which are 'comparable' to the subject in question. Using knowledge of the value of certain items such as fireplaces, room layout, appliance upgrades, extra bathrooms or bedrooms, or quality of construction, we add or subtract from each comparable's sales price so that they more accurately portray the features of subject.

  • If, for example, the comparable has an irrigation system and the subject does not, the appraiser may subtract the value of an irrigation system from the sales price of the comparable home.
  • If the subject property has an extra half-bathroom and the comparable does not, the appraiser might add an amount to the comparable property.

A valid estimate of what the subject could sell for can only be determined once all differences between the comps and the subject have been evaluated. When it comes to putting a value on features of homes in Bells and Grayson, Advanced Appraisals is second to none. The sales comparison approach to value is most often awarded the most consideration when an appraisal is for a home purchase.

Valuation Using the Income Approach

A third method of valuing a house is sometimes used when an area has a reasonable number of renter occupied properties. In this case, the amount of income the property generates is taken into consideration along with income produced by nearby properties to derive the current value.

Putting It All Together

Combining information from all applicable approaches, the appraiser is then ready to stipulate an estimated market value for the property at hand. It is important to note that while the appraised value is probably the strongest indication of what a house is worth, it may not be the final sales price. Depending on the individual situations of the buyer or seller, their level of urgency or a buyer's desire for that exact property, the closing price of a home can always be driven up or down.Regardless, the appraised value is typically used as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. It all comes down to this, an appraiser from Advanced Appraisals will guarantee you attain the most fair and balanced property value, so you can make wise real estate decisions.