What Are the Components of an Appraisal?

Buying a home is the most serious financial decision some of us may ever encounter. Whether it's a main residence, a second vacation home or a rental fixer upper, 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 familiar person in the transaction is the real estate agent. Next, the bank provides the financial capital required to finance the transaction. And ensuring all details of the sale are completed and that a clear title passes from the seller to the buyer is the title company.

To learn more about appraising, click here to see a short video or call us today to talk about your specific property.

So, what party is responsible for making sure the value of the real estate is consistent with the purchase price? In comes the appraiser. We provide an unbiased estimate 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 Easterly Enterprises, Inc. will ensure, you as an interested party, are informed.

Appraisals start with the property inspection

To determine an accurate status of the property, it's our duty to first conduct a thorough inspection. We must physically see features, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they indeed are there and are in the condition a reasonable buyer would expect them to be. The inspection often includes a sketch of the floorplan, ensuring the square footage is accurate and conveying the layout of the property. Most importantly, the appraiser identifies any obvious features - or defects - that would affect the value of the property.

Back at the office, an appraiser uses two or three approaches to determining the value of real property: paired sales analysis and, in the case of a rental property, an income approach.

Cost Approach

This is where we gather information on local construction costs, labor rates and other factors to derive how much it would cost to replace the property being appraised. This estimate often sets the maximum on what a property would sell for. The cost approach is also the least used method.

Paired Sales Analysis

Appraisers can tell you a lot about the communities in which they appraise. They innately understand the value of specific features to the people of that area. Then, the appraiser looks up recent transactions in close proximity to the subject and finds properties which are 'comparable' to the subject in question. Using knowledge of the value of certain items such as fireplaces, room layout, appliance upgrades, additional bathrooms or bedrooms, or quality of construction, we add or subtract from each comparable's sales price so that they more accurately portray the features of subject.

For example, if the comparable property has an irrigation system and the subject does not, the appraiser may subtract the value of an irrigation system from the sales price of the comparable.
However, 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.

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. When it comes to knowing the true worth of features of homes in Lebanon and Wilson, Easterly Enterprises, Inc. is your local authority. This approach to value is most often given the most importance when an appraisal is for a home sale.

Valuation Using the Income Approach

A third method of valuing approach to value is sometimes employed when an area has a reasonable number of renter occupied properties. In this scenario, the amount of revenue the real estate generates is factored in with income produced by nearby properties to give an indicator of the current value.

The Bottom Line

Analyzing the data from all approaches, the appraiser is then ready to stipulate an estimated market value for the subject property. 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 valueDepending on the individual situations 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.But the appraised value is typically employed 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 Easterly Enterprises, Inc. will guarantee you discover the most fair and balanced property value, so you can make wise real estate decisions.