What Goes Into an Appraisal?

Their home's purchase is the most serious financial decision some people might ever encounter. Whether it's a main residence, a seasonal vacation home or one of many rentals, purchasing real property is a detailed transaction that requires multiple people working in concert to pull it all off.

The majority of the parties involved are quite familiar. The most known person in the exchange is the real estate agent. Then, the mortgage company provides the money necessary to bankroll the transaction. And the title company sees to it that all aspects 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 property is worth the amount being paid? This is where you meet the appraiser. 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 A.D. Real Estate, LLC will ensure, you as an interested party, are informed.

The inspection is where an appraisal begins

Our first duty at A.D. Real Estate, LLC is to inspect the property to ascertain its true status. We must see features hands on, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they really are there and are in the condition a reasonable buyer would expect them to be. To make sure the stated size of the property is accurate and document the layout of the house, the inspection often entails creating a sketch of the floorplan. Most importantly, the appraiser identifies any obvious features - or defects - that would affect the value of the property.

Following the inspection, we use two or three approaches to determining the value of real property: paired sales analysis and, in the case of a rental property, an income approach.

Replacement Cost

This is where the appraiser analyzes information on local building costs, the cost of labor and other factors to derive how much it would cost to build a property similar to the one being appraised. This estimate often sets the maximum on what a property would sell for. It's also the least used method.

Sales Comparison

Appraisers get to know the subdivisions in which they appraise. They thoroughly understand the value of particular features to the people of that area. Then, the appraiser looks up recent sales in the neighborhood and finds properties which are 'comparable' to the real estate at hand. Using knowledge of the value of certain items such as square footage, additional bathrooms, hardwood floors, fireplaces or view lots (just to name a few), we adjust the comparable properties so that they are more accurately in line with the features of subject.

  • If, for example, the comparable property has an irrigation system and the subject doesn't, the appraiser may subtract the value of an irrigation system from the sales price of the comparable.
  • But, 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. At A.D. Real Estate, LLC, we are an authority when it comes to knowing the worth of real estate features in Vandalia and Montgomery County neighborhoods. 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 method of valuing real estate is sometimes employed when an area has a reasonable number of renter occupied properties. In this situation, the amount of income the property yields is factored in with income produced by neighboring properties to determine the current value.

Reconciliation

Combining information from all approaches, the appraiser is then ready to put down an estimated market value for the subject property. Note: While the appraised value is probably the most reliable indication of what a property is worth, it probably will not be the price at which the property closes. Prices 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 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 A.D. Real Estate, LLC will guarantee you discover the most accurate property value, so you can make profitable real estate decisions.