Real Estate Appraisals: A Primer

Their home's purchase can be the most serious transaction most could ever consider. It doesn't matter if a primary residence, a second vacation property or an investment, the purchase of real property is a detailed financial transaction that requires multiple parties to make it all happen.

You're likely to be familiar with the parties having a role in the transaction. The real estate agent is the most known person in the exchange. Then, the mortgage company provides the financial capital needed to fund the transaction. And ensuring all details of the transaction are completed and that the title is clear to transfer 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, who's responsible for making sure the property is worth the amount being paid? 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 Reds Appraisal Service will ensure, you as an interested party, are informed.

Inspecting the subject property

Our first duty at Reds Appraisal Service is to inspect the property to ascertain its true status. We must actually view features, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they truly are there and are in the shape a typical buyer would expect them to be. The inspection often includes a sketch of the property, ensuring the square footage is correct and conveying the layout of the property. Most importantly, the appraiser identifies any obvious features - or defects - that would have an impact on the value of the house.

After the inspection, an appraiser uses two or three approaches to determining the value of real property: a sales comparison, a replacement cost calculation, and an income approach when rental properties are prevalent.

Replacement Cost

Here, we pull information on local building costs, labor rates and other factors to determine how much it would cost to construct a property comparable to the one being appraised. This estimate commonly sets the maximum on what a property would sell for. The cost approach is also the least used method.

Analyzing Comparable Sales

Appraisers are intimately familiar with the communities in which they appraise. They thoroughly understand the value of particular features to the residents of that area. Then, the appraiser researches recent sales in the vicinity and finds properties which are 'comparable' to the subject being appraised. Using knowledge of the value of certain items such as fireplaces, room layout, appliance upgrades, extra bathrooms or bedrooms, or quality of construction, we add or subtract from each comparable's sales price so that they are more accurately in line with the features of subject property.

  • If, for example, the comparable property has a storm shelter and the subject does not, the appraiser may deduct the value of a storm shelter from the sales price of the comparable home.
  • If the subject has an extra half-bathroom and the comparable does not, the appraiser might add a certain amount to the comparable property.

An opinion of what the subject might sell for can only be determined once all differences between the comps and the subject have been evaluated. When it comes to associating a value with features of homes in Milton and , Reds Appraisal Service can't be beat. The sales comparison approach to value is typically awarded the most weight when an appraisal is for a home purchase.

Valuation Using the Income Approach

A third way of valuing real estate is sometimes employed when a neighborhood has a measurable number of renter occupied properties. In this scenario, the amount of income the real estate produces is factored in with income produced by neighboring properties to derive the current value.

Coming Up With The Final Value

Combining information from all approaches, the appraiser is then ready to document an estimated market value for the subject property. The estimate of value at the bottom of the appraisal report is not always the final sales price even though it is likely the best indication of what a property is worth. 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'. Regardless, the appraised value is often used as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. The bottom line is, an appraiser from Reds Appraisal Service will help you attain the most fair and balanced property value, so you can make the most informed real estate decisions.