Real Estate Appraisals: A Primer

Getting a home can be the biggest financial decision many people may ever encounter. Whether it's a main residence, a seasonal vacation property or one of many rentals, the purchase of real property is a complex 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 real estate agent is the most familiar person in the exchange. Then, the lender provides the money required to bankroll the transaction. And ensuring all details of the exchange are completed and that the title is clear to pass to the buyer from the seller 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 makes sure the real estate is worth the purchase price? In comes 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 Regina McNamee will ensure, you as an interested party, are informed.

The inspection is where an appraisal begins

To determine the true status of the property, it's our duty to first conduct a thorough inspection. We must see features hands on, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they truly are there and are in the condition a typical person would expect them to be. The inspection often includes a sketch of the house, ensuring the square footage is accurate and conveying the layout of the property. Most importantly, the appraiser identifies any obvious amenities - or defects - that would have an impact on the value of the house.

Once the site has been inspected, we use two or three approaches to determining the value of the property: sales comparison and, in the case of a rental property, an income approach.

Cost Approach

Here, the appraiser gathers information on local building costs, the cost of labor and other factors to calculate how much it would cost to construct a property comparable to the one being appraised. This estimate often sets the maximum on what a property would sell for. It's also the least used predictor of value.

Analyzing Comparable Sales

Appraisers are intimately familiar with the subdivisions in which they work. They thoroughly understand the value of certain features to the residents of that area. Then, the appraiser looks up recent transactions in close proximity to the subject and finds properties which are 'comparable' to the property being appraised. Using knowledge of the value of 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.

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.
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. When it comes to knowing the true worth of features of homes in Warrington and Bucks, Regina McNamee can't be beat. This approach to value is typically given the most importance when an appraisal is for a real estate sale.

Valuation Using the Income Approach

A third method of valuing a house is sometimes employed when an area has a measurable number of rental properties. In this scenario, the amount of income the real estate generates is taken into consideration along with other rents in the area for comparable properties to determine the current value.

The Bottom Line

Examining the data from all applicable approaches, the appraiser is then ready to state an estimated market value for the property at hand. The estimate of value on 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. 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 case they had to sell the property again. At the end of the day, an appraiser from Regina McNamee will help you discover the most fair and balanced property value, so you can make the most informed real estate decisions.