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Real Property Appraisals: A Primer

Their home's purchase is the biggest financial decision some might ever make. It doesn't matter if where you raise your family, a seasonal vacation property or an investment, the purchase of real property is an involved financial transaction that requires multiple parties to see it through.

Practically all the participants are quite familiar. The most familiar person in the exchange is the real estate agent. Next, the mortgage company provides the financial capital required to bankroll the transaction. And ensuring all details of the sale are completed and that a clear title passes 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, what party is responsible for making sure the value of the property is consistent with the amount being paid? In comes 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 Gordon Appraisal Company, Inc. will ensure, you as an interested party, are informed.

Appraisals begin with the home inspection

Our first duty at Gordon Appraisal Company, Inc. is to inspect the property to determine its true status. We must see features first hand, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they really are there and are in the shape a reasonable buyer would expect them to be. The inspection often includes a sketch of the property, ensuring the square footage is correct and illustrating the layout of the property. Most importantly, the appraiser identifies any obvious features - or defects - that would affect the value of the property.

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

Replacement Cost

Here, the appraiser analyzes information on local building costs, labor rates and other elements to derive how much it would cost to build a property similar 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.

Sales Comparison

Appraisers are intimately familiar with the neighborhoods in which they work. They thoroughly understand the value of certain features to the people of that area. Then, the appraiser researches recent transactions in the vicinity and finds properties which are 'comparable' to the subject in question. By assigning a dollar value to certain items such as upgraded appliances, extra bathrooms, additional living area, quality of construction, lot size, we adjust the comparable properties so that they more accurately portray the features of subject property.

  • If, for example, the comparable property has an extra half bath that the subject doesn't, the appraiser may deduct the value of that half bath from the sales price of the comparable.
  • However, if the subject has an extra half-bathroom and the comparable does not, the appraiser might add a certain amount 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. At Gordon Appraisal Company, Inc., we are an authority when it comes to knowing the worth of real estate features in Lincoln and Providence County neighborhoods. The sales comparison approach to value is commonly awarded the most weight 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 approach to value. In this scenario, the amount of revenue the property yields is factored in with other rents in the area for comparable properties to derive the current value.

Reconciliation

Combining information from all applicable approaches, the appraiser is then ready to stipulate an estimated market value for the subject property. Note: While this amount is probably the best indication of what a property is worth, it probably will 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. But the appraised value is often used as a guideline for lenders who don't want to loan a buyer more money than they could get back in the event they had to put the property on the market again. The bottom line is, an appraiser from Gordon Appraisal Company, Inc. will help you attain the most accurate property value, so you can make profitable real estate decisions.