What Are the Parts of an Appraisal?

Buying a home is the most serious transaction many people will ever encounter. It doesn't matter if a primary residence, an additional vacation property or one of many rentals, the purchase of real property is a complex transaction that requires multiple people working in concert to see it through.

You're likely to be familiar with the parties having a role in the transaction. The most recognizable person in the transaction is the real estate agent. Then, the lender provides the money needed to finance the transaction. And the title company makes sure that all areas of the sale are completed and that the title is clear to transfer to the buyer from the seller.

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 real estate is consistent 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 property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from North State Appraisal, Inc. will ensure, you as an interested party, are informed.

The inspection is where an appraisal begins

Our first duty at North State Appraisal, Inc. is to inspect the property to ascertain its true status. We must physically view aspects of the property, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they truly exist and are in the condition 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, the appraiser looks for any obvious amenities - or defects - that would have an impact on the value of the house.

Following the inspection, we use 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.

Replacement Cost

Here, the appraiser uses information on local construction costs, labor rates and other factors to calculate how much it would cost to build a property similar to the one being appraised. This value commonly sets the upper limit on what a property would sell for. It's also the least used predictor of value.

Paired Sales Analysis

Appraisers become very familiar with 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 the neighborhood 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, extra bathrooms or bedrooms, or quality of construction, we adjust the comparable properties so that they more accurately portray the features of subject property.

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

An opinion of what the subject could sell for can only be determined once all differences between the comps and the subject have been evaluated. At North State Appraisal, Inc., we are experts in knowing the worth of particular items in Longview and Gregg County neighborhoods. The sales comparison approach to value is commonly given the most consideration 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 a third way of valuing a property. In this situation, the amount of income the property generates is factored in with income produced by similar properties to determine the current value.

Coming Up With The Final Value

Combining information from all applicable approaches, the appraiser is then ready to stipulate an estimated market value for the property in question. Note: While this amount is probably the most reliable indication of what a property is worth, it may not be the final sales price. There are always mitigating factors such as the seller's desire to get out of the property, urgency or 'bidding wars' that may adjust an offer or listing price up or down. Regardless, the appraised value is often employed 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 North State Appraisal, Inc. will guarantee you get the most fair and balanced property value, so you can make the most informed real estate decisions.