What Goes Into an Appraisal?

Getting real estate is the largest financial decision some people will ever encounter. It doesn't matter if a main residence, a second vacation home or one of many rentals, the purchase of real property is an involved transaction that requires multiple people working in concert to pull it all off.

Most of the people participating are very familiar. The most recognizable entity in the exchange is the real estate agent. Then, the mortgage company provides the financial capital necessary to bankroll the deal. And the title company makes sure that all areas of the exchange are completed and that the title is clear to pass 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, what party makes sure the value of the real estate is in line with the purchase price? In comes 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 My Elite Appraisals will ensure, you as an interested party, are informed.

Appraisals begin with the property inspection

To determine an accurate status of the property, it's our duty to first conduct a thorough inspection. We must actually see aspects of the property, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they really are present and are in the condition a reasonable buyer would expect them to be. The inspection often includes a sketch of the floorplan, ensuring the square footage is proper and illustrating the layout of the property. Most importantly, we identify any obvious amenities - or defects - that would affect the value of the house.

Following the inspection, an appraiser uses two or three approaches to determining the value of real property: sales comparison and, in the case of a rental property, an income approach.

Cost Approach

This is where the appraiser analyzes information on local construction costs, the cost of labor and other elements to determine how much it would cost to construct a property comparable to the one being appraised. This figure commonly sets the upper limit on what a property would sell for. It's also the least used predictor of value.

Analyzing Comparable Sales

Appraisers are intimately familiar with the communities 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 neighborhood and finds properties which are 'comparable' to the property at hand. Using knowledge of the value of certain items such as upgraded appliances, additional bathrooms, additional living area, quality of construction, lot size, we adjust the comparable properties so that they more accurately match the features of subject property.

For example, if the comparable has an extra half bath that the subject does not, 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.

Once all necessary adjustments have been made, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At My Elite Appraisals, we are experts in knowing the value of real estate features in Earth and Lamb County neighborhoods. This approach to value is typically given the most weight when an appraisal is for a home exchange.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - the appraiser may use a third method of valuing a house. In this case, the amount of income the real estate generates is taken into consideration along with income produced by comparable properties to determine the current value.

Arriving at a Value Conclusion

Combining information from all applicable approaches, the appraiser is then ready to put down an estimated market value for the property in question. Note: While the appraised value is probably the strongest indication of what a property is worth, it probably will not be the price at which the property closes. Depending on the individual circumstances 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.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. The bottom line is, an appraiser from My Elite Appraisals will help you discover the most fair and balanced property value, so you can make the most informed real estate decisions.