Home Appraisals: A Primer

So, who makes sure the value of the real estate is in line with the amount being paid? This is where the appraiser comes in. We provide an unbiased opinion 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 My Appraisal Source will ensure, you as an interested party, are informed.

Inspecting the subject property

To ascertain the true status of the property, it's our duty to first complete a thorough inspection. We must see aspects of the property first hand, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they truly are there and are in the condition a typical buyer would expect them to be. The inspection often includes a sketch of the property, ensuring the square footage is accurate and conveying the layout of the property. Most importantly, the appraiser identifies any obvious features - 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 the property: the cost approach, sales comparison approach, and, in the case of a rental property, an income approach.

Cost Approach 

The cost approach answers the question, "How much would the property cost to replace?" This method is often used to estimate the value of infrequently sold properties with specific purposes, like schools, churches, and government buildings.

Here’s the basics of how it’s calculated:

Find the cost of rebuilding the property.
Subtract the depreciation that’s accumulated since the property was built (accounting for concepts like “economic life” and “effective age”)
It’s not quite that simple, but the result should be in the neighborhood of your property’s approximate value.

Because these types of properties aren’t as common as homes and are rarely sold, there’s not as much data available to help flesh out a cost estimate. Again, appraiser expertise is key, so look for an appraiser with experience assessing special-purpose properties.

The sales comparison approach answers the question, "How much are similar properties selling for?" This method is often used to estimate the value of single-family homes and condominiums.

Here’s the basics of how it’s calculated:

1. Take the selling prices of similar properties in the area that were recently sold.
2. Because every property is different, those selling prices don’t perfectly reflect the value of your property. Add or subtract from the selling price based on the differences between the properties (like acreage, living area, upgrades, amenities, etc.).

There are several other factors considered, but the adjusted sale prices of those properties should be similar to the value of your property.

This is where the expertise of your appraiser plays a huge role—no computer can tell you how much your home’s value increases because of your granite countertops or backyard pool. The answer depends on your neighborhood, the market, and numerous other factors. In order to get the most accurate appraisal, hire a local, professional appraiser that understand the specifics of your neighborhood and market.

Income Approach

 The income approach answers the question, "How much income does the property produce?" This method is often used for income-generating properties, like apartment or office buildings.

The income estimate of property value uses a more complex formula, but it’s essentially a function of how much money the building generates annually.

If a property has a steady, fairly predictable income, the future predicted income (which is the estimated property value) seems simple to calculate. However, as with any type of property appraisal, the specifics of each type can complicate the process. 

While the three valuation approaches are three very different processes, they share a huge common factor—the need for an appraiser with specialized experience. MyAppraisalSource.com only accepts assignments that align with our appraisers’ areas of expertise, so no matter your property type, you can be sure that we’re qualified to appraise it accurately. 

Arriving at a Value Conclusion

Analyzing the data from all applicable approaches, the appraiser is then ready to state an estimated market value for the property at hand. It is important to note that while this amount is probably the most accurate indication of what a house is worth, it probably will not be the price at which the property closes. Depending on the specific circumstances of the buyer or seller, their level of urgency or a buyer's desire for that exact property, the closing price of a home can always be driven up or down. Regardless, 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 case they had to sell the property again. The bottom line is, an appraiser from My Appraisal Source will help you attain the most fair and balanced property value, so you can make the most informed real estate decisions.