What Goes Into an Appraisal?

Buying real estate can be the largest transaction some of us could ever make. Whether it's a primary residence, a second vacation property or a rental fixer upper, purchasing real property is a complex transaction that requires multiple parties to see it through.

The majority of the people participating are very familiar. The real estate agent is the most known entity in the exchange. Next, the lender provides the financial capital required to finance 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 makes sure the property is worth the purchase price? This is where the appraiser comes in. 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 Associated Appraisal Service will ensure, you as an interested party, are informed.

Appraisals begin with the property inspection

To ascertain the true status of the property, it's our responsibility to first conduct a thorough inspection. We must see features hands on, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they indeed exist and are in the condition a reasonable person would expect them to be. To make sure the stated square footage is accurate and illustrate the layout of the home, the inspection often entails creating a sketch of the floorplan. Most importantly, the appraiser looks for any obvious amenities - or defects - that would have an impact on the value of the property.

Back at the office, we use two or three approaches to determining the value of the property: sales comparison and, in the case of a rental property, an income approach.

Replacement Cost

This is where the appraiser uses information on local building costs, the cost of labor and other elements to ascertain how much it would cost to replace the property being appraised. This figure commonly sets the upper limit on what a property would sell for. It's also the least used method.

Paired Sales Analysis

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 researches recent transactions in the vicinity and finds properties which are 'comparable' to the property being appraised. By assigning a dollar value to 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 are more accurately in line with the features of subject.

For example, if the comparable has an extra half bath that the subject doesn't, the appraiser may subtract the value of that half bath 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.

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. When it comes to associating a value with features of homes in League City and Galveston, Associated Appraisal Service can't be beat. This approach to value is usually given the most weight when an appraisal is for a home sale.

Valuation Using the Income Approach

A third way of valuing a house is sometimes employed when a neighborhood has a reasonable number of rental properties. In this situation, the amount of revenue the property yields is factored in with income produced by neighboring properties to derive the current value.

Putting It All Together

Analyzing the data from all applicable approaches, the appraiser is then ready to document an estimated market value for the subject property. It is important to note that while the appraised value is probably the most reliable indication of what a house is worth, it may not be the price at which the property closes. 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. 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 Associated Appraisal Service will help you discover the most accurate property value, so you can make profitable real estate decisions.