What Are the Parts of an Appraisal?

A home purchase is the largest financial decision most people will ever encounter. It doesn't matter if where you raise your family, a seasonal vacation home or one of many rentals, the purchase of real property is a complex financial transaction that requires multiple people working in concert to see it through.

Most of the people participating are quite familiar. The most known face in the exchange is the real estate agent. Then, the mortgage company provides the money necessary to finance the deal. The title company ensures that all details of the exchange are completed and that a clear title passes from the seller to the purchaser.

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 real estate is worth the amount being paid? In comes the appraiser. We provide an unbiased opinion 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 Dan Helms & Company will ensure, you as an interested party, are informed.

The inspection is where an appraisal begins

To ascertain an accurate status of the property, it's our duty to first perform a thorough inspection. We must see features first hand, such as the number of bedrooms and bathrooms, the location, living areas, 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 is accurate and describe the layout of the home, the inspection often entails creating a sketch of the floorplan. Most importantly, we look for any obvious amenities - or defects - that would have an impact on the value of the property.

Once the site has been inspected, 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

This is where we use information on local construction costs, the cost of labor and other elements to calculate how much it would cost to replace the property being appraised. This value often sets the upper limit on what a property would sell for. The cost approach is also the least used method.

Paired Sales Analysis

Appraisers are intimately familiar with the communities in which they appraise. They innately understand the value of particular features to the homeowners of that area. Then, the appraiser looks up recent sales in the area and finds properties which are 'comparable' to the home in question. Using knowledge of the value of 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.

For example, if the comparable has an irrigation system and the subject does not, the appraiser may deduct the value of an irrigation system from the sales price of the comparable home.
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 might sell for can only be determined once all differences between the comps and the subject have been evaluated. At Dan Helms & Company, we are experts when it comes to knowing the worth of real estate features in Milton and Santa Rosa County neighborhoods. The sales comparison approach to value is most often awarded the most importance when an appraisal is for a real estate sale.

Valuation Using the Income Approach

A third way of valuing approach to value is sometimes employed when an area has a reasonable number of rental properties. In this scenario, the amount of revenue the real estate yields is factored in with income produced by similar properties to derive the current value.

The Bottom Line

Analyzing the data from all approaches, the appraiser is then ready to document an estimated market value for the property in question. It is important to note that while this amount is probably the most accurate indication of what a property is worth, it may 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'. Regardless, 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 sell the property again. The bottom line is, an appraiser from Dan Helms & Company will guarantee you get the most accurate property value, so you can make profitable real estate decisions.