Real Estate Appraisals: A Primer

Acquiring real estate can be the most significant investment many people might ever make. Whether it's where you raise your family, a seasonal vacation property or an investment, purchasing real property is an involved financial transaction that requires multiple people working in concert to make it all happen.

The majority of the participants are quite familiar. The real estate agent is the most recognizable person in the transaction. Then, the lender provides the money necessary to fund the deal. And ensuring all details of the sale are completed and that a clear title passes 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, who's responsible for making sure the value of the property is consistent with the purchase price? This is where you meet 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 Accredited Appraisals will ensure, you as an interested party, are informed.

Inspecting the subject property

Our first task at Accredited Appraisals is to inspect the property to determine its true status. We must actually view aspects of the property, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they truly are there and are in the shape a typical buyer would expect them to be. To make sure the stated size of the property is accurate and convey the layout of the home, the inspection often entails creating a sketch of the floorplan. Most importantly, we identify any obvious features - or defects - that would affect the value of the property.

Following the inspection, we use 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

This is where the appraiser pulls information on local building 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 maximum on what a property would sell for. The cost approach is also the least used predictor of value.

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 residents of that area. Then, the appraiser researches recent sales in close proximity to the subject and finds properties which are 'comparable' to the real estate at hand. Using knowledge of the value of certain items such as square footage, extra bathrooms, hardwood floors, fireplaces or view lots (just to name a few), we adjust the comparable properties so that they more accurately match the features of subject property.

  • Say, for example, the comparable property has a storm shelter and the subject does not, the appraiser may subtract the value of a storm shelter from the sales price of the comparable.
  • If the subject has an extra half-bathroom and the comparable does not, the appraiser might add a certain amount to the comparable property.

After all differences have been accounted for, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At Accredited Appraisals, we are an authority in knowing the worth of real estate features in Casselberry and Seminole County neighborhoods. The sales comparison approach to value is typically awarded the most importance when an appraisal is for a home sale.

Valuation Using the Income Approach

A third way of valuing a house is sometimes applied when a neighborhood has a measurable number of renter occupied properties. In this scenario, the amount of income the real estate produces is taken into consideration along with income produced by comparable properties to determine the current value.

Reconciliation

Combining information from all 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 house is worth, it probably will not be the final sales price. There are always mitigating factors such as seller motivation, urgency or 'bidding wars' that may adjust the final 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 Accredited Appraisals will help you discover the most fair and balanced property value, so you can make wise real estate decisions.