Decoding the Appraisal Process

Acquiring a home is the largest transaction most people might ever make. Whether it's a primary residence, a second vacation property or an investment, purchasing real property is a detailed transaction that requires multiple parties to pull it all off.

You're probably familiar with the parties having a role in the transaction. The real estate agent is the most familiar entity in the transaction. Then, the lender provides the financial capital required to fund the deal. And ensuring all areas of the exchange are completed and that the title is clear to pass from the seller to the purchaser is the title company.

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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 estimate 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 Residential Appraisal llc will ensure, you as an interested party, are informed.

Inspecting the subject property

To ascertain the true status of the property, it's our duty to first perform a thorough inspection. We must actually see features, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they indeed are present and are in the shape a typical person would expect them to be. To ensure the stated size of the property is accurate and illustrate the layout of the property, the inspection often entails creating a sketch of the floorplan. Most importantly, we look for any obvious amenities - or defects - that would have an impact on the value of the property.

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

Cost Approach

This is where we use 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 usually sets the maximum on what a property would sell for. The cost approach is also the least used predictor of value.

Analyzing Comparable Sales

Appraisers can tell you a lot about the communities in which they work. They thoroughly understand the value of specific features to the residents of that area. Then, the appraiser researches recent transactions in close proximity to the subject and finds properties which are 'comparable' to the home in question. Using knowledge of the value of certain items such as remodeled rooms, types of flooring, energy efficient items, patios and porches, or extra storage space, we adjust the comparable properties so that they more accurately match the features of subject.

  • For example, if the comparable has a fireplace and the subject doesn't, the appraiser may deduct the value of a fireplace from the sales price of the comparable.
  • However, if the subject property has an extra half-bathroom and the comparable does not, the appraiser might add an amount to the comparable property.

In the end, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At Residential Appraisal llc, we are experts in knowing the value of real estate features in Chesterfield and Macomb County neighborhoods. This 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 property is sometimes applied when an area has a measurable number of rental properties. In this case, the amount of revenue the property yields is taken into consideration along with income produced by similar properties to determine the current value.

The Bottom Line

Examining the data from all applicable approaches, the appraiser is then ready to stipulate an estimated market value for the subject property. It is important to note that while the appraised value is probably the most accurate indication of what a property is worth, it may not be the price at which the property closes. Depending on the specific 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 often employed as a guideline for lenders who don't want to loan a buyer more money than they could recover in case they had to put the property on the market again. It all comes down to this, an appraiser from Residential Appraisal llc will help you discover the most fair and balanced property value, so you can make profitable real estate decisions.