Home Appraisals: A Primer

Buying a home tends to be the biggest investment many will ever consider. Whether it's a primary residence, a seasonal vacation property or a rental fixer upper, the purchase of real property is a complex financial transaction that requires multiple people working in concert to see it through.

It's likely you are familiar with the parties taking part in the transaction. The real estate agent is the most recognizable person in the transaction. The bank then provides the money necessary to fund the transaction. And ensuring all aspects of the exchange are completed and that the title is clear to transfer from the seller to the purchaser 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, which party is responsible for making sure the value of the property is in line with the purchase price? This is where you meet the appraiser. We provide an unbiased opinion of what a buyer might expect to pay - or a seller to receive - for a parcel of real estate where both buyer and seller are informed parties. A certified, experienced professional appraiser from Wild River Appraisals will ensure that you, as an interested party, are informed.

The inspection is where an appraisal begins

To ascertain the legitimacy of the property, it's our duty to complete a thorough appraisal inspection. We must physically view aspects of the property, such as the construction quality, the condition and any updates, amenities, the number of bedrooms and bathrooms, the location, finished and unfinished living areas, etc to ensure they indeed are there and are in the shape a typical person would expect them to be. To verify that the stated square footage has not been inadvertently misrepresented, and also to illustrate the general layout of the property, the appraisal inspection includes creating a sketch of the floorplan. The appraiser also identifies any obvious issues, positive and negative, that may affect the value of the property.

Once the site has been inspected, an appraiser uses two or three approaches to determining the value of the property: the Cost Approach, a Sales Comparison Approach and an Income Approach when applicable.

The Cost Approach

Here, the appraiser gathers information on local building costs, labor rates and other related factors to calculate how much it would cost to replace the property being appraised. The Cost Approach, typically with the exception of new construction, is supportive and considered yet can periodically represent the upper limit of value as it does not reflect current real estate market or economic trends.

The Sales Comparison Approach

Appraisers get to know the neighborhoods, towns and counties in which they work. They innately understand the value of particular features to the homeowners of that area. Then, the appraiser researches recent sales in the area and finds properties which are 'comparable' to the home in question. By assigning a dollar value to certain items such as quality of construction, upgrades and updates (or lack of), amenities such as a fireplace, deck or an outbuilding, we adjust to or from each comparable's sale price so that they are more accurately in line with the features of subject.

For example, if the comparable has an outbuilding and the subject does not, the appraiser may deduct the perceived value (not cost) of a similar outbuilding from the sale price of the comparable home.
If the subject has an additional half-bathroom and the comparable does not, the appraiser may add a perceived value to the comparable property.

A professional opinion 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 various features of homes in our rural areas, Wild River Appraisals is your local authority. This approach to value, the Sales Comparison Approach, is typically given the most credence when an appraisal is for a real estate purchase.

Valuation Using the Income Approach

A third way of valuing a property is sometimes used when rental properties are applicable. In this situation, the amount of income the property generates is taken into consideration along with other rents in the area for comparable properties to give an indicator of the current value.

Reconciliation

Thoroughly examining the data from all applicable approaches, the appraiser is then ready to state an opinion of value for the property in question. The final opinion 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 value. It's not uncommon for prices to be driven up or down by extenuating circumstances such as the motivation or urgency of a seller, the determination of a real estate agent to 'get the most money possible' or bidding wars. The appraised value is typically employed 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 put the property on the market again. The bottom line is, an experienced appraiser from Wild River Appraisals will objectively guarantee that you ascertain the most accurate property value, so you can make profitable real estate decisions.