What Are the Components of an Appraisal?

Getting a home can be the most serious investment most might ever make. Whether it's a main residence, a seasonal vacation property or one of many rentals, the purchase of real property is a complex transaction that requires multiple people working in concert 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 known entity in the exchange. Next, the mortgage company provides the money necessary to bankroll the deal. And the title company ensures that all requirements of the exchange are completed and that a clear title passes to the buyer from the seller.

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 property is worth 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 American West Real Estate will ensure, you as an interested party, are informed.

Inspecting the subject property

Our first task at American West Real Estate is to inspect the property to determine its true status. We must see aspects of the property first hand, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they really are present and are in the shape a reasonable person 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 looks for any obvious amenities - or defects - that would affect the value of the house.

Following the inspection, we use two or three approaches to determining the value of real property: sales comparison and, in the case of a rental property, an income approach.

Cost Approach

Here, the appraiser pulls information on local construction costs, labor rates and other factors to calculate how much it would cost to replace the property being appraised. This estimate usually sets the maximum on what a property would sell for. The cost approach is also the least used method.

Sales Comparison

Appraisers become very familiar with the neighborhoods in which they work. They innately understand the value of particular features to the residents of that area. Then, the appraiser looks up recent transactions in the neighborhood and finds properties which are 'comparable' to the property at hand. 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 add or subtract from each comparable's sales price so that they more accurately match the features of subject.

  • If, for example, the comparable 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 could sell for can only be determined once all differences between the comps and the subject have been evaluated. At American West Real Estate, we are experts when it comes to knowing the worth of particular items in Dickinson and Stark County neighborhoods. The sales comparison approach to value is most often awarded the most consideration when an appraisal is for a real estate exchange.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - we may use a third way of valuing a property. In this scenario, the amount of income the property produces is factored in with other rents in the area for comparable properties to determine the current value.

Putting It All Together

Analyzing the data from all applicable approaches, the appraiser is then ready to document an estimated market value for the property at hand. The estimate of value at the bottom of the appraisal report is not necessarily what's being paid for the property even though it is likely the best indication of a property's valueDepending 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.But 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. The bottom line is, an appraiser from American West Real Estate will help you discover the most accurate property value, so you can make wise real estate decisions.