Understanding Appraisals

Acquiring a home can be the most significant financial decision most of us might ever make. Whether it's a main residence, an additional vacation home or a rental fixer upper, the purchase of real property is a complex transaction that requires multiple parties to make it all happen.

Practically all the parties participating are quite familiar. The most familiar person in the transaction is the real estate agent. Next, the mortgage company provides the money needed to bankroll the transaction. And ensuring all requirements of the transaction are completed and that the title is clear to pass from the seller to the buyer 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, who makes sure the value of the property is consistent with the purchase price? This is where you meet the appraiser. We provide an unbiased estimate 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 Full Time Appraisals will ensure, you as an interested party, are informed.

Inspecting the subject property

Our first task at Full Time Appraisals 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, living areas, etc, to ensure they really exist and are in the condition a typical person would expect them to be. To ensure the stated size of the property has not been misrepresented and convey the layout of the house, the inspection often entails creating a sketch of the floorplan. Most importantly, we identify any obvious amenities - or defects - that would have an impact on the value of the house.

Back at the office, we use two or three approaches to determining the value of the property: a sales comparison, a replacement cost calculation, and an income approach when rental properties are prevalent.

Cost Approach

This is where we analyze information on local building costs, labor rates and other elements to calculate how much it would cost to replace the property being appraised. This estimate often sets the maximum on what a property would sell for. It's also the least used predictor of value.

Sales Comparison

Appraisers become very familiar with the subdivisions in which they appraise. They thoroughly understand the value of certain features to the homeowners of that area. Then, the appraiser researches recent transactions in the neighborhood and finds properties which are 'comparable' to the property being appraised. Using knowledge of the value of certain items such as square footage, extra bathrooms, hardwood floors, fireplaces or view lots (just to name a few), we add or subtract from each comparable's sales price so that they more accurately match the features of subject property.

  • For example, if the comparable property has an irrigation system and the subject does not, the appraiser may subtract the value of an irrigation system from the sales price of the comparable home.
  • 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.

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 Full Time Appraisals, we are an authority in knowing the worth of real estate features in Springfield and Greene County neighborhoods. The sales comparison approach to value is commonly awarded the most importance when an appraisal is for a real estate sale.

Valuation Using the Income Approach

A third way of valuing a property is sometimes applied when a neighborhood has a reasonable number of renter occupied properties. In this scenario, the amount of income the property generates is taken into consideration along with income produced by similar properties to give an indicator of the current value.

Putting It All Together

Analyzing the data from all applicable approaches, the appraiser is then ready to put down an estimated market value for the property at hand. The estimate of value on the appraisal report is not necessarily what's being paid for the property even though it is likely the best indication of a property's valuePrices can always be driven up or down by extenuating circumstances like the motivation or urgency of a seller or 'bidding wars'. Regardless, the appraised value is often 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 sell the property again. Here's what it all boils down to, an appraiser from Full Time Appraisals will guarantee you attain the most accurate property value, so you can make profitable real estate decisions.