What Are the Components of an Appraisal?

Their home's purchase is the biggest investment most may ever consider. It doesn't matter if a main residence, a second vacation property or a rental fixer upper, the purchase of real property is a complex financial transaction that requires multiple people working in concert to see it through.

It's likely you are familiar with the parties having a role in the transaction. The most recognizable entity in the transaction is the real estate agent. Then, the lender provides the money needed to finance the exchange. And ensuring all areas of the transaction are completed and that a clear title transfers to the buyer from the seller is the title company.

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So, who's responsible for making sure the property is worth the amount being paid? This is where the appraiser comes in. We provide an unbiased estimate 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 Simon Appraisal Services will ensure, you as an interested party, are informed.

The inspection is where an appraisal begins

To ascertain the true status of the property, it's our responsibility to first conduct a thorough inspection. We must see features first hand, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they indeed exist and are in the condition a typical person would expect them to be. To make sure the stated square footage has not been misrepresented and describe the layout of the property, the inspection often requires creating a sketch of the floorplan. Most importantly, we look for any obvious features - or defects - that would affect the value of the property.

Following the inspection, an appraiser uses two or three approaches to determining the value of the property: a paired sales analysis, a replacement cost calculation, and an income approach when rental properties are prevalent.

Cost Approach

This is where the appraiser uses information on local building costs, the cost of labor and other factors to ascertain how much it would cost to build a property comparable to the one being appraised. This figure commonly sets the upper limit on what a property would sell for. It's also the least used predictor of value.

Sales Comparison

Appraisers can tell you a lot about the neighborhoods in which they appraise. They innately understand the value of certain features to the homeowners of that area. Then, the appraiser looks up recent transactions in the area and finds properties which are 'comparable' to the real estate being appraised. Using knowledge of the value of certain items such as fireplaces, room layout, appliance upgrades, additional bathrooms or bedrooms, or quality of construction, we add or subtract from each comparable's sales price so that they more accurately portray the features of subject property.

For example, if the comparable property has a storm shelter and the subject doesn't, 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.

In the end, 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 Elkhorn and Douglas, Simon Appraisal Services can't be beat. This approach to value is typically given the most weight when an appraisal is for a home purchase.

Valuation Using the Income Approach

A third method of valuing a property is sometimes applied when a neighborhood has a measurable number of renter occupied properties. In this situation, the amount of revenue the property produces is factored in with other rents in the area for comparable properties to give an indicator of the current value.

Coming Up With The Final Value

Combining information from all applicable approaches, the appraiser is then ready to put down an estimated market value for the property at hand. Note: While the appraised value is probably the most reliable indication of what a house is worth, it probably will not be the price at which the property closes. Prices can always be driven up or down by extenuating circumstances like the motivation or urgency of a seller or 'bidding wars'. But the appraised value is typically used as a guideline for lenders who don't want to loan a buyer more money than they could recover in case they had to put the property on the market again. At the end of the day, an appraiser from Simon Appraisal Services will guarantee you get the most accurate property value, so you can make wise real estate decisions.