What Are the Parts of an Appraisal?

Purchasing real estate is the biggest transaction some could ever encounter. It doesn't matter if a main residence, an additional vacation home or a rental fixer upper, purchasing real property is a complex financial transaction that requires multiple parties to pull it all off.

Practically all the parties involved are quite familiar. The most known face in the transaction is the real estate agent. Next, the lender provides the financial capital needed to fund the deal. The title company ensures that all aspects of the exchange are completed and that the title is clear to transfer from the seller to the buyer.

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So, who makes sure the value of the property is consistent with the amount being paid? This is where the appraiser comes in. 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 Secure Appraisal will ensure, you as an interested party, are informed.

Inspecting the subject property

Our first task at Secure Appraisal is to inspect the property to determine its true status. We must actually view aspects of the property, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they really are present and are in the shape a reasonable person would expect them to be. The inspection often includes a sketch of the property, ensuring the square footage is proper and conveying the layout of the property. Most importantly, we look for any obvious amenities - or defects - that would affect the value of the property.

Back at the office, 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.

Cost Approach

Here, we gather information on local construction costs, the cost of labor and other elements to ascertain how much it would cost to replace the property being appraised. This estimate usually sets the maximum on what a property would sell for. The cost approach is also the least used method.

Paired Sales Analysis

Appraisers get to know the communities in which they appraise. They thoroughly understand the value of particular features to the homeowners of that area. Then, the appraiser looks up recent sales in close proximity to the subject and finds properties which are 'comparable' to the real estate in question. Using knowledge of the value of certain items such as square footage, additional bathrooms, hardwood floors, fireplaces or view lots (just to name a few), 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 extra half bath that the subject doesn't, the appraiser may subtract the value of that half bath 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.

A valid estimate of what the subject might sell for can only be determined once all differences between the comps and the subject have been evaluated. At Secure Appraisal, we are an authority in knowing the value of real estate features in Washington Township and Macomb County neighborhoods. The sales comparison approach to value is usually awarded the most importance when an appraisal is for a real estate purchase.

Valuation Using the Income Approach

A third method of valuing a house is sometimes used when an area has a measurable number of renter occupied properties. In this case, the amount of revenue the real estate yields is taken into consideration along with income produced by comparable properties to derive the current value.

Reconciliation

Analyzing the data from all applicable approaches, the appraiser is then ready to state an estimated market value for the subject property. The estimate of value on the appraisal report is not always what's being paid for the property even though it is likely the best indication of what a property is worth. Prices can always be driven up or down by extenuating circumstances like the motivation or urgency of a seller or 'bidding wars'. 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 Secure Appraisal will guarantee you get the most fair and balanced property value, so you can make the most informed real estate decisions.