What Are the Parts of an Appraisal?

Getting real estate can be the most significant investment some of us could ever make. It doesn't matter if a primary residence, a seasonal vacation property or one of many rentals, purchasing real property is a detailed financial transaction that requires multiple people working in concert to pull it all off.

You're likely to be familiar with the parties having a role in the transaction. The most recognizable face in the transaction is the real estate agent. Next, the lender provides the financial capital required to finance the exchange. And the title company ensures that all details of the sale are completed and that a clear title passes to the buyer from the seller.

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So, who's responsible for making sure the value of the property is in line with the purchase price? 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 A4 Appraisal Professional Corp. will ensure, you as an interested party, are informed.

The inspection is where an appraisal starts

To ascertain the true status of the property, it's our duty to first perform a thorough inspection. We must see features first hand, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they truly exist and are in the condition a typical buyer would expect them to be. The inspection often includes a sketch of the property, ensuring the square footage is accurate and illustrating the layout of the property. Most importantly, the appraiser identifies any obvious amenities - or defects - that would affect the value of the house.

Once the site has been inspected, we use 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

This is where we gather information on local construction costs, the cost of labor and other elements to figure out how much it would cost to replace the property being appraised. This figure commonly sets the upper limit on what a property would sell for. The cost approach is also the least used method.

Paired Sales Analysis

Appraisers get to know the neighborhoods in which they work. They innately understand the value of specific features to the people of that area. Then, the appraiser looks up recent transactions in close proximity to the subject and finds properties which are 'comparable' to the property in question. By assigning a dollar value to certain items such as fireplaces, room layout, appliance upgrades, additional 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.

  • 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.
  • 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.

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. When it comes to associating a value with features of homes in Rockford and Winnebago, A4 Appraisal Professional Corp. is second to none. This approach to value is typically given the most weight 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 - we may use a third approach to value. In this case, the amount of revenue the property yields is factored in with other rents in the area for comparable properties to determine the current value.

Putting It All Together

Combining information from all applicable approaches, the appraiser is then ready to state an estimated market value for the property at hand. The estimate of value on the appraisal report is not necessarily the final sales price even though it is likely the best indication of a property's valueThere are always mitigating factors such as seller motivation, urgency or 'bidding wars' that may adjust an offer or listing 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. At the end of the day, an appraiser from A4 Appraisal Professional Corp. will help you discover the most fair and balanced property value, so you can make wise real estate decisions.