What Are the Parts of an Appraisal?

A home purchase is the largest transaction many of us will ever consider. Whether it's a main residence, a second vacation property or one of many rentals, purchasing real property is an involved transaction that requires multiple people working in concert to see it through.

The majority of the participants are quite familiar. The most familiar person in the transaction is the real estate agent. Then, the bank provides the financial capital needed to bankroll the exchange. And the title company makes sure that all areas of the exchange are completed and that a clear title transfers from the seller to the purchaser.

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So, who makes sure the property is worth the amount being paid? In comes the appraiser. We provide an unbiased estimate of what a buyer could expect to pay — or a seller receive — for a property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from True Value Appraisal Services, Inc. will ensure, you as an interested party, are informed.

The inspection is where an appraisal starts

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, living areas, etc, to ensure they indeed are there and are in the shape a reasonable person would expect them to be. The inspection often includes a sketch of the house, 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: sales comparison and, in the case of a rental property, an income approach.

Replacement Cost

Here, the appraiser pulls information on local construction costs, labor rates and other elements to derive how much it would cost to construct a property comparable to the one being appraised. This value 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 are intimately familiar with the communities in which they work. They innately understand the value of particular features to the people of that area. Then, the appraiser looks up recent sales in close proximity to the subject and finds properties which are 'comparable' to the real estate at hand. 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 are more accurately in line with the features of subject.

For example, if the comparable property has a storm shelter and the subject does not, the appraiser may deduct the value of a storm shelter from the sales price of the comparable.
If the subject property has an extra half-bathroom and the comparable does not, the appraiser might add an amount to the comparable property.

An opinion 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 valuing features of homes in Winter Haven and Polk, True Value Appraisal Services, Inc. is second to none. This approach to value is most often awarded the most weight when an appraisal is for a real estate sale.

Valuation Using the Income Approach

A third way of valuing a house is sometimes applied when a neighborhood has a measurable number of rental properties. In this case, the amount of income the property generates is taken into consideration along with income produced by comparable properties to give an indicator of the current value.

The Bottom Line

Combining information 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 strongest indication of what a house is worth, it may not be the final sales price. There are always mitigating factors such as seller motivation, urgency or 'bidding wars' that may adjust an offer or listing price up or down. But the appraised value is typically employed 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 True Value Appraisal Services, Inc. will guarantee you get the most fair and balanced property value, so you can make the most informed real estate decisions.