What Goes Into an Appraisal?

A home purchase can be the most serious financial decision some might ever consider. It doesn't matter if where you raise your family, a second vacation home, or a rental fixer upper, purchasing real property is a detailed transaction that requires multiple parties to see it through.

It's likely you are familiar with the parties having a role in the transaction. The real estate agent is the most known entity in the exchange. Then, the bank provides the money required to fund the deal. The title company sees to it that all details of the exchange are completed and that the title is clear to pass to the buyer from the seller.

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So, what party is responsible for making sure the value of the property is in line with the purchase price? This is where the appraiser comes in. We provide an unbiased opinion of what a buyer could expect to pay — or a seller receive — for a property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Caloosa Appraisal Services, Inc. will ensure, you as an interested party, are informed.

Appraisals begin with the home (appraisal) inspection

Our first task at Caloosa Appraisal Services, Inc. is to inspect the property to determine its true status. We must see features hands on, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they really are present and are in the shape a typical buyer would expect them to be. The inspection often includes a sketch of the property, ensuring the square footage is correct and illustrating the layout of the property. Most importantly, we identify any obvious amenities - or defects - that would affect the value of the house.

Next, after the inspection, we use two or three approaches to determining the value of the property: a paired sales analysis, a replacement cost calculation, and an income approach when rental properties are prevalent.

Cost Approach

Here, we gather information on local construction costs, labor rates and other factors to determine how much it would cost to replace the property being appraised. This figure commonly sets the upper limit on what a property would sell for. It's also the least used predictor of value.

Paired Sales Analysis

Appraisers can tell you a lot about the neighborhoods in which they appraise. They innately understand the value of particular features to the people of that area. Then, the appraiser researches recent transactions in the neighborhood and finds properties which are 'comparable' to the subject in question. Using knowledge of the value of certain items such as upgraded appliances, additional bathrooms, additional living area, quality of construction, lot size, we add or subtract from each comparable's sales price so that they are more accurately in line with the features of subject property.

  • For example, if the comparable has a pool and the subject doesn't, the appraiser may subtract the value of a pool from the sales price of the comparable home.
  • 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.

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. The sales comparison approach to value is typically given the most importance when an appraisal is for a home sale.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - we may use a third way of valuing real estate. In this scenario, the amount of income the property yields is factored in with income produced by nearby properties to derive the current value.

The Bottom Line

Combining information from the approaches, the appraiser is then ready to stipulate an estimated market value for the property at hand. The estimate of value on the appraisal report is not necessarily the final sales price, even though it is likely the best indication of a property's value. Depending on the specific circumstances of the buyer or seller, their level of urgency or a buyer's desire for that exact property, the closing price of a home can always be driven up or down. 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.