Decoding the Appraisal Process

Purchasing real estate is the biggest investment many of us might ever make. It doesn't matter if a primary residence, a seasonal vacation home or an investment, purchasing real property is a complex financial transaction that requires multiple people working in concert to see it through.

Most of the participants are very familiar. The most recognizable face in the exchange is the real estate agent. Next, the mortgage company provides the money needed to bankroll the exchange. And ensuring all requirements of the exchange are completed and that a clear title transfers 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 in line with the amount being paid? This is where you meet the appraiser. We provide an unbiased opinion of what a buyer could expect to pay — or a seller receive — for a property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Property Valuation Group will ensure, you as an interested party, are informed.

Inspecting the subject property

Our first duty at Property Valuation Group is to inspect the property to ascertain 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 present and are in the condition a typical person would expect them to be. To make sure the stated size of the property is accurate and convey the layout of the house, the inspection often includes creating a sketch of the floorplan. 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 the property: sales comparison and, in the case of a rental property, an income approach.

Replacement Cost

This is where we pull information on local construction costs, labor rates and other elements to calculate how much it would cost to construct a property comparable to the one being appraised. This estimate commonly sets the maximum 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 neighborhoods in which they work. They thoroughly understand the value of particular features to the residents of that area. Then, the appraiser researches recent sales in the vicinity and finds properties which are 'comparable' to the real estate in question. Using knowledge of the value of certain items such as remodeled rooms, types of flooring, energy efficient items, patios and porches, or extra storage space, we adjust the comparable properties so that they are more accurately in line with the features of subject property.

  • If, 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.
  • 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.

An opinion of what the subject might 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 features of homes in Ferndale and Oakland, Property Valuation Group can't be beat. The sales comparison approach to value is usually given the most weight when an appraisal is for a home exchange.

Valuation Using the Income Approach

A third way of valuing approach to value is sometimes employed when an area has a measurable number of rental properties. In this case, the amount of income the real estate yields is factored in with other rents in the area for comparable properties to give an indicator of the current value.

Putting It All Together

Examining the data from all approaches, the appraiser is then ready to document an estimated market value for the property in question. Note: While the appraised value is probably the most accurate indication of what a house is worth, it may not be the price at which the property closes. There are always mitigating factors such as seller motivation, urgency or 'bidding wars' that may adjust an offer or listing price up or down. Regardless, the appraised value is typically used 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 Property Valuation Group will guarantee you discover the most fair and balanced property value, so you can make profitable real estate decisions.