What Are the Components of an Appraisal?

Purchasing a house is the most serious investment most of us might ever encounter. Whether it's a primary residence, a seasonal vacation home or a rental fixer upper, the purchase of real property is a complex transaction that requires multiple people working in concert to make it all happen.

Most of the participants are quite familiar. The real estate agent is the most familiar face in the transaction. Next, the mortgage company provides the money needed to fund the exchange. And ensuring all aspects of the exchange are completed and that the title is clear to pass to the buyer from the seller is the title company.

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So, what party makes sure the real estate is worth the amount being paid? This is where you meet the Appraiser. We provide an unbiased estimate of what a buyer might expect to pay — or a seller receive — for a property, 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.

Inspecting the Subject Property

To determine the true status of the property, it's our responsibility to first conduct a thorough inspection. We must see aspects of the property hands on, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they really are there and are in the condition a reasonable person would expect them to be. To ensure the stated size of the property is accurate and document the layout of the house, the inspection often includes creating a sketch of the floor plan. Most importantly, we look for any obvious amenities - or defects - that would have an impact on the value of the property.

Once the site has been inspected, we use two or three approaches to determining the value of real property: a Sales Comparison, a Replacement Cost Valuation, and an Income Approach when the
property appraised is a rental property.

Replacement Cost

This is where we use information on local building costs, the cost of labor and other elements to calculate how much it would cost to replace the property being appraised. This estimate usually sets the maximum on what a property would sell for. Though the cost approach is the least used predictor of value, it often is utilized to showcase yet another attribute of the Subject Property.

Paired Sales Analysis

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

  • For example, if the comparable has a storm shelter and the subject doesn't, the Appraiser may subtract the value of a storm shelter from the sales price of the comparable.
  • However, if the subject property has an extra half-bathroom and the comparable does not, the Appraiser might add a certain amount 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. At Passage Appraisal, LLC, we are an authority in knowing the value of real estate features in Oak Harbor, Island County and surrounding county neighborhoods. The sales comparison approach to value is usually given the most weight when an appraisal is for a real estate purchase.

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 scenario, the amount of income the property produces is taken into consideration along with income produced by comparable properties to derive the current value.

Coming Up With The Final Value

Analyzing the data from all applicable approaches, the Appraiser is then ready to document an estimated market value for the subject property. Note: While the appraised value is probably the most accurate indication of what a property is worth, it probably will not be the final sales price. Prices can always 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 used as a guideline for lenders who don't want to loan a buyer more money than they could recover in the event they had to sell the property again. It all comes down to this, an Appraiser from Passage Appraisal, LLC will help you get the most fair and balanced property value, so you are then able to make your most informed real estate decisions.