Making Sense of the Appraisal Process

A home purchase can be the largest investment many will ever consider. Whether it's where you raise your family, an additional vacation property or one of many rentals, the purchase of real property is a detailed financial transaction that requires multiple parties to pull it all off.

You're probably familiar with the parties taking part in the transaction. The real estate agent is the most recognizable entity in the transaction. Next, the mortgage company provides the financial capital necessary to finance the exchange. And ensuring all aspects of the exchange are completed and that a clear title transfers from the seller to the buyer is the title company.

To learn more about appraising, click here to see a short video or call us today to talk about your specific property.

So, who's responsible for making sure the value of the property is consistent with the purchase price? This is where the appraiser comes in. We provide an unbiased opinion 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 Race Appraisal Services, LLC will ensure, you as an interested party, are informed.

Appraisals start with the inspection

To determine an accurate status of the property, it's our responsibility to first complete a thorough inspection. We must physically 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 shape a typical person would expect them to be. To ensure the stated size of the property is accurate and convey the layout of the property, the inspection often entails creating a sketch of the floorplan. Most importantly, we identify any obvious features - or defects - that would affect the value of the property.

Back at the office, an appraiser uses two or three approaches to determining the value of the property: paired sales analysis and, in the case of a rental property, an income approach.

Cost Approach

Here, the appraiser analyzes information on local construction costs, labor rates and other elements to figure out 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 get to know the neighborhoods in which they appraise. They innately understand the value of particular 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 real estate at hand. Using knowledge of the value of certain items such as fireplaces, room layout, appliance upgrades, extra bathrooms or bedrooms, or quality of construction, we adjust the comparable properties so that they more accurately portray the features of subject property.

  • If, for example, the comparable has an irrigation system and the subject doesn't, the appraiser may deduct the value of an irrigation system from the sales price of the comparable home.
  • If the subject has an extra half-bathroom and the comparable does not, the appraiser might add a certain amount to the comparable property.

An opinion of what the subject could sell for can only be determined once all differences between the comps and the subject have been evaluated. At Race Appraisal Services, LLC, we are experts in knowing the worth of real estate features in East Longmeadow and Hampden County neighborhoods. This approach to value is usually awarded the most importance when an appraisal is for a real estate purchase.

Valuation Using the Income Approach

A third way of valuing real estate is sometimes applied when a neighborhood has a reasonable number of rental properties. In this scenario, the amount of income the real estate yields is taken into consideration along with income produced by nearby 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. It is important to note that while this amount is probably the best indication of what a house is worth, it may not be the final sales price. Depending on the individual 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.But the appraised value is often employed 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 Race Appraisal Services, LLC will guarantee you get the most accurate property value, so you can make wise real estate decisions.

Got a Question?

Do you have a question relating to real estate appraisals? We can help. Simply fill out the form below and we'll contact you with the answer, with no obligation to you. We guarantee your privacy.

Information
Question