What Are the Parts of an Appraisal?

A home purchase is the most serious financial decision most people might ever consider. Whether it's a primary residence, a seasonal vacation home or an investment, the purchase of real property is an involved transaction that requires multiple parties to see it through.

Most people are familiar with the parties having a role in the transaction. The most recognizable person in the exchange is the real estate agent. Then, the lender provides the financial capital necessary to finance the exchange. The title company sees to it that all details of the exchange are completed and that the title is clear to transfer to the buyer from the seller.

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So, who makes sure the value of the real estate is consistent with the purchase price? In comes the appraiser. We provide an unbiased opinion 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 licensed, certified, professional appraiser from Appraisal Consulting Group, PSC will ensure, you as an interested party, are informed.

The inspection is where an appraisal begins

To determine the true status of the property, it's our responsibility to first conduct a thorough inspection. We must physically see aspects of the property, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they truly exist and are in the condition a reasonable person would expect them to be. To make sure the stated size of the property has not been misrepresented and illustrate the layout of the home, the inspection often entails creating a sketch of the floorplan. Most importantly, we look for any obvious amenities - or defects - that would affect the value of the property.

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

Cost Approach

Here, we analyze information on local construction costs, the cost of labor and other elements to derive how much it would cost to construct a property similar to the one being appraised. This estimate usually sets the maximum on what a property would sell for. It's also the least used method.

Sales Comparison

Appraisers get to know the communities in which they work. They innately understand the value of particular features to the residents of that area. Then, the appraiser looks up recent transactions in the vicinity and finds properties which are 'comparable' to the subject 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 add or subtract from each comparable's sales price so that they more accurately portray the features of subject property.

For example, if the comparable has an extra half bath that the subject doesn't, the appraiser may deduct the value of that half bath from the sales price of the comparable home.
However, if the subject has an extra half-bathroom and the comparable does not, the appraiser might add an amount 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 knowing the true worth of features of homes in Carolina and Carolina, Appraisal Consulting Group, PSC can't be beat. The sales comparison approach to value is usually awarded the most consideration when an appraisal is for a real estate exchange.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - we may use an additional approach to value. In this situation, the amount of income the real estate generates is taken into consideration along with income produced by comparable properties to derive the current value.

The Bottom Line

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 at the bottom of the appraisal report is not always what's being paid for the property even though it is likely the best indication of what a property is worth. 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 often 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 Appraisal Consulting Group, PSC will guarantee you get the most fair and balanced property value, so you can make wise real estate decisions.