Real Estate Appraisals: A Primer

Their home's purchase is the biggest transaction many could ever encounter. Whether it's where you raise your family, a seasonal vacation property or an investment, purchasing real property is an involved transaction that requires multiple parties to pull it all off.

It's likely you are familiar with the parties taking part in the transaction. The real estate agent is the most familiar face in the exchange. Then, the lender provides the money necessary to bankroll the deal. And ensuring all requirements of the transaction 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 makes sure the value of the real estate is in line 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 Able Capital Appraisal will ensure, you as an interested party, are informed.

Appraisals begin with the inspection

To ascertain an accurate status of the property, it's our duty to first perform a thorough inspection. We must actually view features, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they truly are there and are in the condition a reasonable person would expect them to be. The inspection often includes a sketch of the property, ensuring the square footage is correct and illustrating the layout of the property. Most importantly, the appraiser looks for any obvious amenities - or defects - that would have an impact on the value of the property.

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, the appraiser uses information on local building costs, labor rates and other factors to ascertain how much it would cost to construct a property comparable to the one being appraised. This figure commonly sets the maximum on what a property would sell for. It's also the least used method.

Paired Sales Analysis

Appraisers become very familiar with the communities in which they work. They innately understand the value of certain features to the residents of that area. Then, the appraiser researches recent transactions in the neighborhood and finds properties which are 'comparable' to the property in question. Using knowledge of the value of certain items such as fireplaces, room layout, appliance upgrades, extra bathrooms or bedrooms, or quality of construction, we adjust the comparable properties so that they more accurately match the features of subject.

  • Say, for example, the comparable has an extra half bath that the subject does not, the appraiser may deduct the value of that half bath from the sales price of the comparable home.
  • However, if the subject has an extra half-bathroom and the comparable does not, the appraiser might add an 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. When it comes to putting a value on features of homes in Durham and Durham, Able Capital Appraisal is second to none. The sales comparison approach to value is usually awarded the most importance when an appraisal is for a home exchange.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - we may use a third approach to value. In this scenario, the amount of revenue the real estate produces is taken into consideration along with income produced by comparable properties to give an indicator of the current value.

Coming Up With The Final Value

Analyzing the data from all approaches, the appraiser is then ready to stipulate an estimated market value for the subject property. Note: While the appraised value is probably the most reliable indication of what a house is worth, it probably will not be the final sales price. Depending on the individual situations 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 often used 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 put the property on the market again. It all comes down to this, an appraiser from Able Capital Appraisal will help you discover the most accurate property value, so you can make wise real estate decisions.