Real Estate Appraisals: A Primer

Acquiring real estate can be the largest financial decision some people will ever make. Whether it's a main residence, a seasonal vacation property or an investment, the purchase of real property is a detailed financial transaction that requires multiple people working in concert to see it through.

Most of the participants are very familiar. The real estate agent is the most familiar face in the exchange. Next, the lender provides the money needed to finance the exchange. And the title company ensures that all details of the exchange are completed and that a clear title passes to the buyer from the seller.

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 purchase price? In comes the appraiser. We provide an unbiased estimate of what a buyer might 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 Affiliated Appraisal Services will ensure, you as an interested party, are informed.

Inspecting the subject property

To ascertain an accurate status of the property, it's our duty to first conduct a thorough inspection. We must physically view features, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they indeed are present and are in the shape a reasonable person would expect them to be. The inspection often includes a sketch of the floorplan, ensuring the square footage is proper 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.

Once the site has been inspected, we use two or three approaches to determining the value of real property: sales comparison and, in the case of a rental property, an income approach.

Cost Approach

Here, we gather information on local construction costs, the cost of labor and other factors to figure out how much it would cost to replace the property being appraised. This value usually sets the upper limit on what a property would sell for. It's also the least used predictor of value.

Sales Comparison

Appraisers can tell you a lot about the neighborhoods in which they appraise. They innately understand the value of certain features to the homeowners of that area. Then, the appraiser looks up recent sales in close proximity to the subject and finds properties which are 'comparable' to the home in question. By assigning a dollar value to certain items such as square footage, additional bathrooms, hardwood floors, fireplaces or view lots (just to name a few), we add or subtract from each comparable's sales price so that they more accurately match the features of subject property.

  • For example, if the comparable property has a storm shelter and the subject does not, the appraiser may subtract the value of a storm shelter from the sales price of the comparable.
  • If the subject property has an extra half-bathroom and the comparable does not, the appraiser might add an amount to the comparable property.

After all differences have been accounted for, 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 associating a value with features of homes in Vero Beach and Indian River, Affiliated Appraisal Services is your local authority. The sales comparison approach to value is commonly given the most weight when an appraisal is for a real estate purchase.

Valuation Using the Income Approach

A third way of valuing a property is sometimes applied when an area has a measurable number of renter occupied properties. In this situation, the amount of income the real estate generates is taken into consideration along with income produced by nearby properties to give an indicator of the current value.

Reconciliation

Analyzing the data from all approaches, the appraiser is then ready to stipulate an estimated market value for the subject property. 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. 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. The bottom line is, an appraiser from Affiliated Appraisal Services will help you discover the most accurate property value, so you can make wise real estate decisions.