Comprehending Appraisals


Getting real estate can be the most important investment some people may ever make. Whether it's where you raise your family, a seasonal vacation home or one of many rentals, purchasing real property is a detailed financial transaction that requires multiple parties to make it all happen.

It's likely you are familiar with the parties having a role in the transaction. The real estate agent is the most known face in the exchange. Next, the lender provides the financial capital necessary to bankroll the deal. And ensuring all areas of the transaction are completed and that a clear title passes from the seller to the buyer is the title company.


So then, who is responsible for making sure the real estate is worth the purchase price? This is where you meet the appraiser who provides an unbiased estimate of what a buyer could expect to pay - or seller receive - for a parcel of real estate, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Passage Appraisal, LLC will ensure you as an interested party are informed.

Appraisals Begin with the Inspection

To determine an accurate status of the property, it's our responsibility to first perform a thorough inspection. We must physically view features, such as the number of bedrooms and bathrooms, the location, living ares, etc, to ensure they really are present 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 home, the inspection often includes creating a sketch of the floor plan. Most importantly, the appraiser identifies any obvious amenities - or defects - that would have an impact on the value of the house.

Back at the office, an appraiser uses two or three approaches to determining the value of real property: a paired sales analysis, a replacement cost calculation, and an income approach when rental properties are prevalent.

Replacement Cost

Here, the appraiser uses information on local construction costs, the cost of labor and other factors to figure out how much it would cost to construct a property similar to the one being appraised. This figure often sets the maximum on what a property would sell for. The cost approach is also the least used predictor of value.

Sales Comparison

Appraisers can tell you a lot about the communities in which they work. They innately understand the value of certain features to the people of that area. An appraiser looks up recent transactions found in close proximity to the subject, finding properties which are 'comparable' to the property in question. By assigning a dollar value to certain items such as upgraded appliances, additional bathrooms, bedrooms or living area, the quality of construction, lot size, etc. we then adjust the comparable properties so that they are more accurately in line with the features of your property.

  • If, for example, the comparable has additional living space that the subject does not, the appraiser will deduct the value of the extra square footage from the sales price of the comparable.
  • But, in the case where the subject has something such as an extra bath that a comparable doesn't have, the appraiser might add the value of that bath to the comparable property.

A true estimate of what the subject could sell for can only be determined once all differences between the comps and the subject have been evaluated. At Passage Appraisal, LLC, we are knowledgable concerning the worth of real estate features found in NW Washington County neighborhoods. The sales comparison approach to value is most often given the most consideration when an appraisal is for a real estate exchange.

Valuation Using the Income Approach

A third way of valuing a property is sometimes employed when an area has a measurable number of renter occupied properties. In this situation, the amount of income the real estate generates is factored in with income produced by nearby properties to determine the current value.

Reconciliation

Combining information from all applicable approaches, the appraiser is then ready to state 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. And, 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'. However, 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.
At the end of the day: An appraiser from Passage Appraisal, LLC will help you find your property's fair and balanced value, so you are able to make wise real estate decisions.