Real Estate Appraisals: A Primer

Purchasing a home can be the most serious transaction some people will ever consider. It doesn't matter if where you raise your family, a second vacation property or an investment, purchasing real property is an involved financial transaction that requires multiple people working in concert to make it all happen.

The majority of the participants are quite familiar. The most known person in the exchange is the real estate agent. Then, the bank provides the money required to fund the transaction. The title company ensures that all areas of the transaction are completed and that the title is clear to transfer to the buyer from the seller.

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 real estate is in line with the amount being paid? 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 certified, professional appraiser from Taylor Appraisal Service, LLC will ensure, you as an interested party, are informed.

The inspection is where an appraisal begins

To ascertain an accurate status of the property, it's our duty to first complete 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 present and are in the shape 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 look for any obvious amenities - or defects - that would have an impact on the value of the property.

Back at the office, 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

Here, we gather information on local building costs, the cost of labor and other factors to figure out how much it would cost to replace the property being appraised. This estimate commonly sets the upper limit on what a property would sell for. The cost approach is also the least used predictor of value.

Sales Comparison

Appraisers become very familiar with the neighborhoods in which they work. They innately understand the value of particular features to the homeowners of that area. Then, the appraiser researches recent transactions in the neighborhood and finds properties which are 'comparable' to the real estate in question. By assigning a dollar value to 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 the subject.

  • Say, for example, the comparable property has a storm shelter and the subject doesn't, the appraiser may deduct the value of a storm shelter 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.

An opinion of what the subject might sell for can only be determined once all differences between the comps and the subject have been evaluated. When it comes to putting a value on features of homes in Pettis, Benton, Henry, Johnson and Morgan counties, Taylor Appraisal Service, LLC can't be beat. This approach to value is commonly given the most weight when an appraisal is for a home purchase.

Valuation Using the Income Approach

A third method of valuing a property is sometimes employed when an area has a measurable number of rental properties. In this case, the amount of income the property yields is factored in with income produced by comparable properties to determine the current value.

The Bottom Line

Examining the data from all approaches, the appraiser is then ready to stipulate an estimated market value for the subject property. The estimate of value at the bottom of 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 value It's not uncommon for prices to 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 put the property on the market again. The bottom line is, an appraiser from Taylor Appraisal Service, LLC will help you attain the fairest and balanced property value, so you can make the most informed real estate decisions.