What Are the Components of an Appraisal?

Buying a home can be the most important transaction some of us could ever make. It doesn't matter if a primary residence, a seasonal vacation property or an investment, the purchase of real property is an involved transaction that requires multiple people working in concert to pull it all off.

You're likely to be familiar with the parties taking part in the transaction. The most known person in the transaction is the real estate agent. Next, the mortgage company provides the money necessary to finance the deal. And the title company sees to it that all details of the transaction are completed and that the title is clear to transfer from the seller to the buyer.

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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 parcel of real estate, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Warren Appraisal Service will ensure, you as an interested party, are informed.

The inspection is where an appraisal starts

To determine an accurate status of the property, it's our responsibility to first complete a thorough inspection. We must actually view aspects of the property, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they indeed exist and are in the condition a typical person would expect them to be. To ensure the stated size of the property is accurate and illustrate the layout of the house, the inspection often entails creating a sketch of the floorplan. Most importantly, the appraiser identifies any obvious amenities - or defects - that would affect the value of the house.

Next, after the inspection, we use two or three approaches to determining the value of real property: sales comparison and, in the case of a rental property, an income approach.

Cost Approach

Here, the appraiser pulls information on local building costs, labor rates and other factors to calculate how much it would cost to replace the property being appraised. This value commonly sets the maximum on what a property would sell for. It's also the least used method.

Sales Comparison

Appraisers are intimately familiar with the communities in which they work. They innately understand the value of specific features to the people of that area. Then, the appraiser researches recent sales in the neighborhood and finds properties which are 'comparable' to the home being appraised. By assigning a dollar value to certain items such as upgraded appliances, additional bathrooms, additional living area, quality of construction, lot size, we adjust the comparable properties so that they are more accurately in line with the features of subject property.

  • If, for example, the comparable 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.
  • 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.

A valid estimate of what the subject could sell for can only be determined once all differences between the comps and the subject have been evaluated. At Warren Appraisal Service, we are experts in knowing the worth of real estate features in Orange Park and Clay County neighborhoods. This approach to value is commonly given the most importance when an appraisal is for a real estate purchase.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - the appraiser may use a third approach to value. In this scenario, the amount of revenue the real estate yields is factored in with other rents in the area for comparable properties to derive the current value.

Reconciliation

Combining information from all applicable approaches, the appraiser is then ready to document an estimated market value for the property at hand. The estimate of value on the appraisal report is not necessarily what's being paid for the property even though it is likely the best indication of what a property is worth. There are always mitigating factors such as seller motivation, urgency or 'bidding wars' that may adjust the final price up or down. But the appraised value is often employed as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. It all comes down to this, an appraiser from Warren Appraisal Service will help you attain the most accurate property value, so you can make the most informed real estate decisions.