What Are the Components of an Appraisal?

Their home's purchase is the most important transaction many of us may ever encounter. It doesn't matter if where you raise your family, an additional vacation property or one of many rentals, the purchase of real property is a complex financial transaction that requires multiple parties to make it all happen.

It's likely you are familiar with the parties taking part in the transaction. The most familiar entity in the transaction is the real estate agent. Then, the lender provides the money required to fund the exchange. And ensuring all areas of the sale are completed and that a clear title passes 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 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 parcel of real estate, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from BB Appraisals, LLC. will ensure, you as an interested party, are informed.

Appraisals begin 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 truly are there and are in the condition a reasonable person would expect them to be. The inspection often includes a sketch of the house, ensuring the square footage is correct and illustrating the layout of the property. Most importantly, we look for any obvious features - or defects - that would affect the value of the property.

Next, after the inspection, an appraiser uses 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.

Replacement Cost

This is where the appraiser gathers information on local construction costs, labor rates and other elements to calculate how much it would cost to replace the property being appraised. This estimate commonly sets the maximum on what a property would sell for. It's also the least used predictor of value.

Sales Comparison

Appraisers become very familiar with the subdivisions in which they appraise. They innately understand the value of specific features to the residents of that area. Then, the appraiser looks up recent transactions in the neighborhood and finds properties which are 'comparable' to the home being appraised. By assigning a dollar value to certain items such as remodeled rooms, types of flooring, energy efficient items, patios and porches, or additional storage space, 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 property has a fireplace and the subject does not, the appraiser may subtract the value of a fireplace from the sales price of the comparable home.
  • However, if the subject has an extra half-bathroom and the comparable does not, the appraiser might add a certain amount to the comparable property.

Once all necessary adjustments have been made, 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 Springfield and Greene, BB Appraisals, LLC. is your local authority. This approach to value is typically awarded the most importance when an appraisal is for a home purchase.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - the appraiser may use a third way of valuing a house. In this case, the amount of revenue the property generates is taken into consideration along with income produced by neighboring properties to determine the current value.

The Bottom Line

Combining information from all approaches, the appraiser is then ready to document 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 what a property is worth. 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 typically used as a guideline for lenders who don't want to loan a buyer more money than they could recover in case they had to sell the property again. The bottom line is, an appraiser from BB Appraisals, LLC. will help you get the most fair and balanced property value, so you can make wise real estate decisions.