What Are the Parts of an Appraisal?

Acquiring real estate is the largest investment most of us might ever encounter. Whether it's a primary residence, a seasonal vacation property or one of many rentals, the purchase of real property is a complex financial transaction that requires multiple parties to pull it all off.

It's likely you 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 necessary to bankroll the deal. The title company makes sure that all requirements of the sale are completed and that the title is clear to pass to the buyer from the seller.

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 property is worth the amount being paid? In comes the appraiser. We provide an unbiased opinion of what a buyer might 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 Kristin Jackson will ensure, you as an interested party, are informed.

Inspecting the subject property

To ascertain the true status of the property, it's our duty to first complete a thorough inspection. We must actually view aspects of the property, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they truly are present and are in the condition a typical buyer would expect them to be. The inspection often includes a sketch of the floorplan, ensuring the square footage is accurate 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, we use two or three approaches to determining the value of real property: a paired sales analysis, a replacement cost calculation, and an income approach when rental properties are prevalent.

Replacement Cost

This is where we gather information on local construction costs, the cost of labor and other factors to figure out how much it would cost to replace the property being appraised. This figure commonly sets the maximum on what a property would sell for. It's also the least used predictor of value.

Paired Sales Analysis

Appraisers become very familiar with the subdivisions in which they work. They innately understand the value of specific features to the residents of that area. Then, the appraiser looks up recent sales in close proximity to the subject and finds properties which are 'comparable' to the home being appraised. By assigning a dollar value to certain items such as fireplaces, room layout, appliance upgrades, extra bathrooms or bedrooms, or quality of construction, we adjust the comparable properties so that they more accurately match the features of subject property.

Say, for example, 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 home.
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.

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. At Kristin Jackson, we are experts when it comes to knowing the worth of particular items in Colden and Erie County neighborhoods. This approach to value is most often awarded the most importance when an appraisal is for a real estate sale.

Valuation Using the Income Approach

A third method of valuing real estate is sometimes employed when a neighborhood has a measurable number of renter occupied properties. In this case, the amount of revenue the property generates is taken into consideration along with other rents in the area for comparable properties to derive the current value.

Coming Up With The Final Value

Combining information from all applicable approaches, the appraiser is then ready to stipulate an estimated market value for the property at hand. Note: While the appraised value is probably the most reliable indication of what a house is worth, it may not be the price at which the property closes. 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. At the end of the day, an appraiser from Kristin Jackson will help you attain the most accurate property value, so you can make profitable real estate decisions.