Making Sense of the Appraisal Process

Their home's purchase can be the most important investment some of us will ever consider. It doesn't matter if a main residence, a second vacation property or a rental fixer upper, purchasing real property is an involved transaction that requires multiple parties to make it all happen.

Most people are familiar with the parties taking part in the transaction. The most familiar face in the exchange is the real estate agent. Next, the lender provides the financial capital needed to fund the deal. And ensuring all areas of the sale are completed and that the title is clear to transfer to the buyer from the seller is the title company.

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So, who's responsible for making sure the value of the property is consistent with the purchase price? This is where you meet 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 Hopewell Appraisals LLC will ensure, you as an interested party, are informed.

Appraisals begin with the property inspection

Our first task at Hopewell Appraisals LLC is to inspect the property to determine its true status. We must physically see aspects of the property, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they truly are present and are in the condition a reasonable buyer would expect them to be. To make sure the stated square footage is accurate and illustrate the layout of the home, 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.

Back at the office, 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, we gather information on local building costs, the cost of labor and other elements to ascertain how much it would cost to build 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 predictor of value.

Analyzing Comparable Sales

Appraisers get to know the communities in which they work. They innately understand the value of certain features to the homeowners of that area. Then, the appraiser researches recent sales in the vicinity and finds properties which are 'comparable' to the real estate in question. By assigning a dollar value to certain items such as square footage, extra bathrooms, hardwood floors, fireplaces or view lots (just to name a few), we adjust the comparable properties so that they are more accurately in line with the features of subject.

For example, if the comparable property has a fireplace and the subject does not, the appraiser may subtract the value of a fireplace 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 knowing the true worth of features of homes in Quitman and Clarke, Hopewell Appraisals LLC is your local authority. The sales comparison approach to value is most often given the most consideration when an appraisal is for a real estate purchase.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - the appraiser may use an additional approach to value. In this situation, the amount of income the property generates is taken into consideration along with income produced by neighboring properties to determine 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. The estimate of value at the bottom of the appraisal report is not always what's being paid for the property even though it is likely the best indication of what a property is worth. 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 employed 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 Hopewell Appraisals LLC will guarantee you get the most fair and balanced property value, so you can make profitable real estate decisions.