Real Estate Appraisals: A Primer

Purchasing real estate can be the largest transaction most people could ever encounter. Whether it's a main residence, a second vacation property or a rental fixer upper, purchasing real property is a complex financial transaction that requires multiple people working in concert to make it all happen.

The majority of the people participating are quite familiar. The most known person in the exchange is the real estate agent. Next, the mortgage company provides the money needed to finance the deal. The title company makes sure that all aspects of the sale are completed and that the title is clear to pass 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 makes sure the value of the real estate is in line with the purchase price? This is where you meet the appraiser. 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 Timely Appraisal Services will ensure, you as an interested party, are informed.

Inspecting the subject property

Our first responsibility at Timely Appraisal Services 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, and so on, to ensure they really are there and are in the condition a typical person would expect them to be. The inspection often includes a sketch of the property, ensuring the square footage is accurate and illustrating the layout of the property. Most importantly, the appraiser identifies any obvious amenities - or defects - that would affect the value of the house.

Next, after the inspection, we use 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 pulls information on local building costs, labor rates and other elements to figure out 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. The cost approach is also the least used predictor of value.

Paired Sales Analysis

Appraisers are intimately familiar with the subdivisions in which they work. They innately understand the value of specific features to the residents of that area. Then, the appraiser looks up recent transactions in the area and finds properties which are 'comparable' to the home 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 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 home.
  • If the subject has an extra half-bathroom and the comparable does not, the appraiser might add a certain amount to the comparable property.

A valid estimate of what the subject could sell for can only be determined once all differences between the comps and the subject have been evaluated. When it comes to knowing the true worth of features of homes in Quinlan and Hunt, Timely Appraisal Services is your local authority. This approach to value is typically given the most consideration when an appraisal is for a home exchange.

Valuation Using the Income Approach

A third way of valuing a property is sometimes applied when an area has a reasonable number of rental properties. In this situation, the amount of income the real estate yields is factored in with other rents in the area for comparable properties to derive the current value.

The Bottom Line

Examining the data from all applicable approaches, the appraiser is then ready to document an estimated market value for the subject property. It is important to note that while the appraised value is probably the most accurate indication of what a house is worth, it may 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 typically 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 sell the property again. At the end of the day, an appraiser from Timely Appraisal Services will help you attain the most fair and balanced property value, so you can make profitable real estate decisions.