What Are the Components of an Appraisal?

Getting real estate is the biggest financial decision some people will ever encounter. Whether it's where you raise your family, an additional vacation property or one of many rentals, purchasing real property is a detailed transaction that requires multiple people working in concert to pull it all off.

It's likely you are familiar with the parties having a role in the transaction. The real estate agent is the most recognizable person in the exchange. Then, the lender provides the money needed to fund the deal. And ensuring all requirements of the sale are completed and that a clear title transfers 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, what party makes sure the value of the property is in line with the purchase price? In comes the appraiser. We provide an unbiased estimate 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 Mallamas Appraisal Service will ensure, you as an interested party, are informed.

The inspection is where an appraisal begins

To determine the true status of the property, it's our duty to first perform 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 there and are in the condition a reasonable buyer would expect them to be. To make sure the stated size of the property is accurate and convey the layout of the house, the inspection often requires creating a sketch of the floorplan. Most importantly, we identify any obvious amenities - 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 real property: paired sales analysis and, in the case of a rental property, an income approach.

Replacement Cost

This is where the appraiser analyzes information on local construction costs, labor rates and other elements to derive how much it would cost to build a property similar to the one being appraised. This estimate usually sets the maximum on what a property would sell for. The cost approach is also the least used predictor of value.

Sales Comparison

Appraisers are intimately familiar with the neighborhoods 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 the vicinity and finds properties which are 'comparable' to the subject at hand. Using knowledge of the value of certain items such as upgraded appliances, additional bathrooms, additional living area, quality of construction, lot size, we adjust the comparable properties so that they are more accurately in line with the features of subject property.

For example, if the comparable has a fireplace and the subject does not, the appraiser may subtract the value of a fireplace from the sales price of the comparable.
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.

In the end, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At Mallamas Appraisal Service, we are an authority when it comes to knowing the value of particular items in Warne and Clay County neighborhoods. This approach to value is most often given the most weight when an appraisal is for a home exchange.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - the appraiser may use a third approach to value. In this scenario, the amount of revenue the property produces is taken into consideration along with other rents in the area for comparable properties to determine the current value.

Coming Up With The Final Value

Combining information from all approaches, the appraiser is then ready to put down an estimated market value for the subject property. The estimate of value at the bottom of the appraisal report is not always 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 often used as a guideline for lenders who don't want to loan a buyer more money than they could get back in case they had to put the property on the market again. At the end of the day, an appraiser from Mallamas Appraisal Service will help you get the most accurate property value, so you can make wise real estate decisions.