What Goes Into an Appraisal?

Buying a house can be the most serious financial decision some people might ever consider. Whether it's a primary residence, a seasonal vacation home or a rental fixer upper, the purchase of real property is a complex transaction that requires multiple parties to pull it all off.

It's likely you are familiar with the parties taking part in the transaction. The real estate agent is the most familiar face in the exchange. Next, the bank provides the money required to bankroll the exchange. And ensuring all areas of the exchange 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 value of the real estate is consistent with the purchase price? This is where the appraiser comes in. We provide an unbiased opinion 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 N/A will ensure, you as an interested party, are informed.

The inspection is where an appraisal starts

To determine the true status of the property, it's our duty to first perform a thorough inspection. We must actually view features, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they really are present and are in the condition a typical person would expect them to be. To make sure the stated square footage has not been misrepresented and illustrate the layout of the property, the inspection often includes creating a sketch of the floorplan. Most importantly, the appraiser identifies any obvious features - 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: paired sales analysis and, in the case of a rental property, an income approach.

Replacement Cost

Here, we use information on local construction costs, the cost of labor and other factors to determine how much it would cost to construct a property comparable to the one being appraised. This value usually sets the upper limit on what a property would sell for. It's also the least used predictor of value.

Analyzing Comparable Sales

Appraisers become very familiar with the subdivisions in which they appraise. They thoroughly 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 being appraised. By assigning a dollar value to certain items such as square footage, additional bathrooms, hardwood floors, fireplaces or view lots (just to name a few), we adjust the comparable properties so that they more accurately portray the features of subject property.

For example, if 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.
However, if the subject has an extra half-bathroom and the comparable does not, the appraiser might add a certain amount to the comparable property.

Once all necessary adjustments have been made, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At N/A, we are experts in knowing the value of particular items in Gilbert and Maricopa County neighborhoods. This approach to value is commonly awarded the most importance when an appraisal is for a home exchange.

Valuation Using the Income Approach

A third way of valuing approach to value is sometimes employed when a neighborhood has a reasonable number of renter occupied properties. In this case, the amount of revenue the real estate produces is factored in with other rents in the area for comparable properties to derive the current value.

The Bottom Line

Examining the data from all applicable approaches, the appraiser is then ready to document an estimated market value for the property at hand. Note: While this amount is probably the best indication of what a property is worth, it may not be the price at which the property closes. Depending on the specific situations of the buyer or seller, their level of urgency or a buyer's desire for that exact property, the closing price of a home can always be driven up or down.But the appraised value is typically employed 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 N/A will guarantee you get the most fair and balanced property value, so you can make wise real estate decisions.