What Are the Components of an Appraisal?

Getting real estate can be the largest investment most of us might ever encounter. Whether it's a primary residence, an additional vacation property or one of many rentals, purchasing real property is a detailed transaction that requires multiple parties to see it through.

It's likely you are familiar with the parties taking part in the transaction. The real estate agent is the most familiar entity in the transaction. Then, the lender provides the money required to finance the deal. And ensuring all aspects of the transaction are completed and that a clear title transfers to the buyer from the seller is the title company.

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So, who makes sure the property is worth the purchase price? 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 Williams Appraisal Service will ensure, you as an interested party, are informed.

Appraisals start with the home inspection

Our first responsibility at Williams Appraisal Service is to inspect the property to determine its true status. We must see features hands on, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they indeed are there and are in the condition a typical 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, we look for any obvious features - or defects - that would affect the value of the property.

Next, after the inspection, an appraiser uses two or three approaches to determining the value of the property: a sales comparison, a replacement cost calculation, and an income approach when rental properties are prevalent.

Cost Approach

This is where the appraiser analyzes information on local construction costs, labor rates and other elements to ascertain how much it would cost to replace the property being appraised. This estimate commonly sets the maximum on what a property would sell for. The cost approach is also the least used predictor of value.

Sales Comparison

Appraisers get to know the subdivisions in which they work. They thoroughly understand the value of certain features to the homeowners of that area. Then, the appraiser looks up recent transactions in the vicinity and finds properties which are 'comparable' to the real estate in question. 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 adjust the comparable properties so that they are more accurately in line with the features of subject.

  • Say, for example, 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.

Once all necessary adjustments have been made, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At Williams Appraisal Service, we are an authority in knowing the value of particular items in Abingdon and Washington County neighborhoods. This approach to value is most often awarded the most consideration when an appraisal is for a home purchase.

Valuation Using the Income Approach

A third method of valuing approach to value is sometimes applied when a neighborhood has a reasonable number of rental properties. In this scenario, the amount of revenue the real estate generates is taken into consideration along with other rents in the area for comparable properties to give an indicator of the current value.

Reconciliation

Combining information from all approaches, the appraiser is then ready to state an estimated market value for the property at hand. The estimate of value on the appraisal report is not necessarily the final sales price even though it is likely the best indication of what a property is worth. It's not uncommon for prices to be driven up or down by extenuating circumstances like the motivation or urgency of a seller or 'bidding wars'. Regardless, the appraised value is typically used as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. It all comes down to this, an appraiser from Williams Appraisal Service will help you get the most accurate property value, so you can make profitable real estate decisions.