What Are the Components of an Appraisal?

Purchasing a house is the biggest transaction some of us could ever consider. It doesn't matter if a main residence, a second vacation home or a rental fixer upper, purchasing real property is an involved transaction that requires multiple people working in concert to see it through.

You're likely to be familiar with the parties taking part in the transaction. The real estate agent is the most familiar face in the transaction. Next, the lender provides the money required to finance the exchange. 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.

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So, what party is responsible for making sure the value of the property 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 R E E Services LLC will ensure, you as an interested party, are informed.

The inspection is where an appraisal begins

To ascertain an accurate status of the property, it's our responsibility to first perform a thorough inspection. We must see aspects of the property hands on, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they truly are present and are in the shape a reasonable buyer would expect them to be. To make sure the stated size of the property has not been misrepresented and document the layout of the house, the inspection often includes creating a sketch of the floorplan. Most importantly, the appraiser looks for any obvious amenities - or defects - that would have an impact on the value of the house.

Once the site has been inspected, an appraiser uses 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

Here, we pull information on local construction costs, the cost of labor and other factors to ascertain how much it would cost to replace the property being appraised. This value commonly sets the upper limit on what a property would sell for. It's also the least used method.

Sales Comparison

Appraisers get to know the subdivisions in which they work. They thoroughly understand the value of specific features to the homeowners of that area. Then, the appraiser researches recent transactions in the area and finds properties which are 'comparable' to the real estate being appraised. Using knowledge of the value of certain items such as upgraded appliances, extra bathrooms, additional living area, quality of construction, lot size, we adjust the comparable properties so that they more accurately match the features of subject.

  • If, for example, the comparable property has a fireplace and the subject does not, the appraiser may subtract the value of a fireplace 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.

A true estimate of what the subject could sell for can only be determined once all differences between the comps and the subject have been evaluated. At R E E Services LLC, we are an authority in knowing the worth of particular items in Cross Plains and Dane County neighborhoods. This approach to value is most often awarded the most weight when an appraisal is for a real estate purchase.

Valuation Using the Income Approach

A third way of valuing a property is sometimes applied when a neighborhood has a measurable number of rental properties. In this case, the amount of revenue the real estate yields is taken into consideration along with income produced by neighboring properties to determine the current value.

Arriving at a Value Conclusion

Analyzing the data from all approaches, the appraiser is then ready to stipulate an estimated market value for the property in question. The estimate of value at the bottom of 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. There are always mitigating factors such as the seller's desire to get out of the property, 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 the event they had to sell the property again. It all comes down to this, an appraiser from R E E Services LLC will guarantee you get the most fair and balanced property value, so you can make profitable real estate decisions.