Decoding the Appraisal Process

Buying a home is the biggest transaction some of us could ever make. It doesn't matter if where you raise your family, an additional vacation property or one of many rentals, purchasing real property is a complex financial transaction that requires multiple people working in concert to make it all happen.

It's likely you are familiar with the parties having a role in the transaction. The real estate agent is the most familiar face in the transaction. Then, the bank provides the money needed to fund the transaction. The title company ensures that all details of the sale are completed and that a clear title passes from the seller to the buyer.

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So, who's responsible for making sure the property is worth the amount being paid? This is where you meet 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 Enslen Appraisal Services, LLC will ensure, you as an interested party, are informed.

The inspection is where an appraisal starts

To determine an accurate status of the property, it's our responsibility to first complete a thorough inspection. We must actually view features, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they really are present and are in the condition a reasonable person 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 identify any obvious amenities - or defects - that would have an impact on the value of the property.

Following the inspection, we use 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.

Cost Approach

This is where the appraiser analyzes information on local construction costs, labor rates and other elements to calculate how much it would cost to construct a property similar to the one being appraised. This figure usually sets the maximum on what a property would sell for. It's also the least used method.

Paired Sales Analysis

Appraisers become very familiar with the communities in which they work. They thoroughly understand the value of specific features to the homeowners of that area. Then, the appraiser looks up recent sales in the neighborhood and finds properties which are 'comparable' to the home at hand. Using knowledge of the value of certain items such as upgraded appliances, extra bathrooms, additional living area, quality of construction, lot size, we add or subtract from each comparable's sales price so that they are more accurately in line with the features of subject.

Say, for example, the comparable property has an irrigation system and the subject doesn't, the appraiser may subtract the value of an irrigation system from the sales price of the comparable home.
But, 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.

A true 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 putting a value on features of homes in Montgomery and Walton, Enslen Appraisal Services, LLC is second to none. The sales comparison approach to value is most often awarded the most importance when an appraisal is for a home purchase.

Valuation Using the Income Approach

A third method of valuing approach to value is sometimes employed when a neighborhood has a measurable number of rental properties. In this case, the amount of revenue the real estate produces is factored in with other rents in the area for comparable properties to give an indicator of the current value.

Reconciliation

Combining information from all applicable approaches, the appraiser is then ready to state an estimated market value for the property in question. The estimate of value on the appraisal report is not always the final sales price even though it is likely the best indication of what a property is worth. 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 typically used as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. Here's what it all boils down to, an appraiser from Enslen Appraisal Services, LLC will help you get the most accurate property value, so you can make profitable real estate decisions.

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