What Goes Into an Appraisal?

Purchasing real estate can be the most serious investment some of us will ever encounter. Whether it's where you raise your family, a seasonal vacation home or a rental fixer upper, the purchase of real property is an involved transaction that requires multiple parties to make it all happen.

Most people are familiar with the parties taking part in the transaction. The most recognizable entity in the transaction is the real estate agent. Next, the lender provides the money needed to fund the exchange. The title company ensures that all areas of the transaction are completed and that a clear title transfers from the seller to the buyer.

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 property is worth the purchase price? This is where you meet the appraiser. We provide an unbiased estimate of what a buyer could expect to pay — or a seller receive — for a property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from SCOTT GALLAGHER will ensure, you as an interested party, are informed.

Appraisals begin with the property inspection

Our first responsibility at SCOTT GALLAGHER is to inspect the property to determine its true status. We must actually view features, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they really are there and are in the shape a reasonable buyer would expect them to be. To ensure the stated size of the property has not been misrepresented and illustrate the layout of the property, the inspection often entails creating a sketch of the floorplan. Most importantly, we look for any obvious features - or defects - that would affect the value of the house.

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

Replacement Cost

This is where we analyze information on local building costs, the cost of labor and other factors to derive how much it would cost to build a property comparable to the one being appraised. This figure often sets the maximum on what a property would sell for. The cost approach is also the least used method.

Paired Sales Analysis

Appraisers can tell you a lot about the subdivisions in which they appraise. They thoroughly understand the value of specific features to the residents of that area. Then, the appraiser researches recent transactions in close proximity to the subject and finds properties which are 'comparable' to the property being appraised. Using knowledge of the value of certain items such as fireplaces, room layout, appliance upgrades, additional bathrooms or bedrooms, or quality of construction, we adjust the comparable properties so that they are more accurately in line with the features of subject property.

For example, if 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 home.
However, if the subject property has an extra half-bathroom and the comparable does not, the appraiser might add an amount 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. When it comes to associating a value with features of homes in Vernon and Tolland, SCOTT GALLAGHER is your local authority. This approach to value is usually given the most importance when an appraisal is for a home exchange.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - the appraiser may use a third approach to value. In this scenario, the amount of revenue the real estate produces is taken into consideration along with other rents in the area for comparable properties to give an indicator of the current value.

The Bottom Line

Combining information from all approaches, the appraiser is then ready to document an estimated market value for the property at hand. Note: While this amount is probably the most reliable indication of what a property is worth, it may not be the price at which the property closes. Depending on the specific circumstances of the buyer or seller, their level of urgency or a buyer's desire for that exact property, the closing price of a home can always be driven up or down.Regardless, the appraised value is typically used as a guideline for lenders who don't want to loan a buyer more money than they could get back in case they had to sell the property again. It all comes down to this, an appraiser from SCOTT GALLAGHER will guarantee you discover the most fair and balanced property value, so you can make profitable real estate decisions.