An Overview of the Appraisal Process

A home purchase is the most important investment many will ever consider. Whether it's a main residence, an additional vacation property or a rental fixer upper, the purchase of real property is a detailed transaction that requires multiple parties to see it through.

Most of the parties involved are very familiar. The most recognizable face in the transaction is the real estate agent. Next, the bank provides the money needed to finance the deal. And the title company makes sure that all details of the exchange are completed and that the title is clear to pass from the seller to the purchaser.

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So, what party makes 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 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 A. M. Appraisals will ensure, you as an interested party, are informed.

The inspection is where an appraisal begins

To determine an accurate status of the property, it's our responsibility to first complete a thorough inspection. We must actually see features, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they really are present and are in the condition a reasonable buyer would expect them to be. The inspection often includes a sketch of the property, ensuring the square footage is accurate 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.

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

Cost Approach

Here, the appraiser uses information on local construction costs, the cost of labor and other elements to derive how much it would cost to replace the property being appraised. This estimate commonly sets the upper limit on what a property would sell for. The cost approach is also the least used predictor of value.

Paired Sales Analysis

Appraisers are intimately familiar with the subdivisions in which they work. They innately understand the value of particular 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 home at hand. 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.

For example, if the comparable property has an irrigation system and the subject doesn't, the appraiser may subtract the value of an irrigation system from the sales price of the comparable home.
However, 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.

After all differences have been accounted for, 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 valuing features of homes in West Columbia and Lexington, A. M. Appraisals is second to none. The sales comparison approach to value is usually awarded the most importance when an appraisal is for a real estate sale.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - we may use an additional approach to value. In this scenario, the amount of income the property yields is factored in with income produced by similar properties to determine the current value.

Reconciliation

Combining information from all applicable approaches, the appraiser is then ready to stipulate 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. 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 typically used as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. Here's what it all boils down to, an appraiser from A. M. Appraisals will guarantee you discover the most fair and balanced property value, so you can make profitable real estate decisions.

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