Home Appraisals: A Primer

Acquiring a home is the largest financial decision many might ever make. Whether it's a primary residence, a second vacation home or an investment, the purchase of real property is a detailed financial transaction that requires multiple parties to make it all happen.

You're likely to be familiar with the parties having a role in the transaction. The most familiar person in the exchange is the real estate agent. Next, the lender provides the financial capital needed to bankroll the transaction. And the title company ensures that all details of the sale are completed and that a clear title passes from the seller to the purchaser.

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

So, who makes sure the value of the real estate is consistent with the amount being paid? In comes the appraiser. We provide an unbiased opinion of what a buyer might expect to pay — or a seller receive — for a property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Advanced Appraisal will ensure, you as an interested party, are informed.

The inspection is where an appraisal begins

Our first task at Advanced Appraisal is to inspect the property to determine its true status. We must see aspects of the property hands on, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they really exist and are in the shape a reasonable buyer would expect them to be. To ensure the stated size of the property has not been misrepresented and describe the layout of the home, the inspection often includes creating a sketch of the floorplan. Most importantly, the appraiser looks for any obvious features - or defects - that would have an impact on the value of the house.

Back at the office, an appraiser uses two or three approaches to determining the value of real property: a paired sales analysis, a replacement cost calculation, and an income approach when rental properties are prevalent.

Replacement Cost

This is where the appraiser uses information on local construction costs, labor rates and other factors to figure out how much it would cost to build a property similar to the one being appraised. This figure commonly sets the upper limit on what a property would sell for. The cost approach is also the least used method.

Analyzing Comparable Sales

Appraisers are intimately familiar with the communities in which they appraise. They thoroughly understand the value of particular 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 subject at hand. Using knowledge of the value of certain items such as remodeled rooms, types of flooring, energy efficient items, patios and porches, or additional storage space, 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 has a fireplace and the subject does not, the appraiser may deduct the value of a fireplace from the sales price of the comparable.
  • 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.

An opinion of what the subject might sell for can only be determined once all differences between the comps and the subject have been evaluated. When it comes to valuing features of homes in Foley and Benton, Advanced Appraisal can't be beat. The sales comparison approach to value is most often awarded the most importance when an appraisal is for a real estate purchase.

Valuation Using the Income Approach

A third method of valuing real estate is sometimes used when a neighborhood has a reasonable number of rental properties. In this situation, the amount of revenue the property produces is factored in with other rents in the area for comparable properties to determine the current value.

The Bottom Line

Combining information from all approaches, the appraiser is then ready to document an estimated market value for the property at hand. The estimate of value on the appraisal report is not always the final sales price 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 the final price up or down. But the appraised value is typically used as a guideline for lenders who don't want to loan a buyer more money than they could get back in case they had to put the property on the market again. Here's what it all boils down to, an appraiser from Advanced Appraisal will guarantee you attain the most fair and balanced property value, so you can make wise real estate decisions.