Understanding the Appraisal Process

Purchasing a house can be the largest financial decision many could ever make. It doesn't matter if a main residence, a second vacation property or one of many rentals, the purchase of real property is a detailed transaction that requires multiple people working in concert to make it all happen.

The majority of the participants are very familiar. The most recognizable face in the transaction is the real estate agent. Then, the mortgage company provides the financial capital necessary to bankroll the transaction. The title company sees to it that all requirements of the exchange are completed and that a clear title passes from the seller to the purchaser.

To learn more about appraising, click here to see a short video or call us today to talk about your specific property.

So, who makes sure the value of the property is consistent with the amount being paid? In comes the appraiser. 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 Real Estate by Jenn, LLC will ensure, you as an interested party, are informed.

The inspection is where an appraisal begins

Our first duty at Real Estate by Jenn, LLC is to inspect the property to determine its true status. We must actually see aspects of the property, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they indeed are there and are in the shape a typical person would expect them to be. To ensure the stated size of the property is accurate and describe the layout of the property, the inspection often entails creating a sketch of the floorplan. Most importantly, we look for any obvious amenities - or defects - that would affect the value of the property.

Back at the office, an appraiser uses 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.

Cost Approach

This is where we use information on local building costs, labor rates and other elements to calculate how much it would cost to replace the property being appraised. This estimate often sets the upper limit on what a property would sell for. The cost approach is also the least used method.

Analyzing Comparable Sales

Appraisers can tell you a lot about the subdivisions in which they appraise. They innately understand the value of certain features to the homeowners of that area. Then, the appraiser researches recent sales in close proximity to the subject and finds properties which are 'comparable' to the home in question. By assigning a dollar value to certain items such as square footage, additional bathrooms, hardwood floors, fireplaces or view lots (just to name a few), we adjust the comparable properties so that they more accurately portray the features of subject.

  • Say, for example, the comparable property has a storm shelter and the subject does not, the appraiser may deduct the value of a storm shelter from the sales price of the comparable.
  • However, 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.

Once all necessary adjustments have been made, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. When it comes to associating a value with features of homes in Phelps and Ontario, Real Estate by Jenn, LLC can't be beat. The sales comparison approach to value is commonly awarded the most weight when an appraisal is for a home exchange.

Valuation Using the Income Approach

A third method of valuing a property is sometimes applied when an area has a reasonable number of renter occupied properties. In this situation, the amount of income the property yields is taken into consideration along with other rents in the area for comparable properties to determine the current value.

Reconciliation

Examining the data from all approaches, the appraiser is then ready to document an estimated market value for the property at hand. The estimate of value at the bottom of the appraisal report is not necessarily what's being paid for the property even though it is likely the best indication of a property's valueThere 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 recover in the event they had to put the property on the market again. It all comes down to this, an appraiser from Real Estate by Jenn, LLC will guarantee you get the most accurate property value, so you can make wise real estate decisions.