What Are the Components of an Appraisal?

Purchasing a home can be the most important financial decision most of us might ever consider. Whether it's a primary residence, a vacation home or an investment, the purchase of real property is a detailed transaction that requires multiple people working in concert to pull it all off.

The majority of the participants are quite familiar. The real estate agent is the most recognizable entity in the exchange. Next, the lender provides the money needed to finance the exchange. And the title company sees to it that all requirements 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's responsible for making sure the real estate 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 parcel of real estate, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Short Real Estate Services, Inc will ensure, you as an interested party, are informed.

The walk-through is where an appraisal starts

To ascertain the true status of the property, it's our responsibility to first perform a thorough walk-through of the property. We must see features hands on, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they indeed are there and are in the shape a reasonable person would expect them to be. The appraisal often includes a sketch of the house, ensuring the square footage is accurate and illustrating the layout of the property. Most importantly, the appraiser identifies any obvious amenities - or defects - that would have an impact on the value of the property.

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

Replacement Cost

This is where the appraiser gathers information on local construction costs, labor rates and other factors to derive how much it would cost to construct a property comparable to the one being appraised. This estimate commonly sets the maximum on what a property would sell for. It's also the least used method.

Paired Sales Analysis

Appraisers get to know the subdivisions in which they work. They thoroughly understand the value of particular features to the people of that area. Then, the appraiser researches recent sales in close proximity to the subject and finds properties which are 'comparable' to the real estate being appraised. By assigning a dollar value to 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.

For example, if the comparable property has an irrigation system and the subject does not, the appraiser may deduct the value of an irrigation system from the sales price of the comparable.
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. When it comes to associating a value with features of homes in Stanaford and Raleigh, Short Real Estate Services, Inc can't be beat. The sales comparison approach to value is usually given the most importance when an appraisal is for a real estate exchange.

Valuation Using the Income Approach

A third way of valuing a house is sometimes applied when an area has a measurable number of renter occupied properties. In this scenario, the amount of revenue the property yields is factored in with other rents in the area for comparable properties to determine the current value.

Reconciliation

Examining the data from all applicable approaches, the appraiser is then ready to state 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 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'. But 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. Here's what it all boils down to, an appraiser from Short Real Estate Services, Inc will guarantee you discover the most accurate property value, so you can make the most informed real estate decisions.