Comprehending Appraisals

Buying real estate can be the most serious transaction many people will ever consider. It doesn't matter if a primary residence, a seasonal vacation property or an investment, purchasing real property is a complex transaction that requires multiple parties to see it through.

Practically all the people participating are quite familiar. The most recognizable entity in the exchange is the real estate agent. Then, the bank provides the financial capital needed to bankroll the deal. And the title company ensures that all details of the exchange 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 makes sure the property is worth the purchase price? In comes the appraiser. 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 Davis Appraisals will ensure, you as an interested party, are informed.

Inspecting the subject property

Our first responsibility at Davis Appraisals is to inspect the property to determine its true status. We must see aspects of the property 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 reasonable buyer would expect them to be. The inspection often includes a sketch of the house, ensuring the square footage is accurate and illustrating the layout of the property. Most importantly, we look for any obvious amenities - 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.

Replacement Cost

This is where the appraiser gathers information on local construction costs, the cost of labor and other elements to ascertain 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 method.

Sales Comparison

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 sales in the area and finds properties which are 'comparable' to the property in question. Using knowledge of the value of certain items such as fireplaces, room layout, appliance upgrades, extra bathrooms or bedrooms, or quality of construction, we add or subtract from each comparable's sales price so that they more accurately match the features of subject property.

  • Say, for example, the comparable has a fireplace and the subject doesn't, the appraiser may deduct the value of a fireplace from the sales price of the comparable home.
  • However, 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 associating a value with features of homes in Crestwood and Oldham, Davis Appraisals is your local authority. The sales comparison approach to value is usually awarded the most consideration when an appraisal is for a home purchase.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - the appraiser may use a third method of valuing a house. In this case, the amount of revenue the real estate produces is factored in with other rents in the area for comparable properties to derive the current value.

Putting It All Together

Analyzing the data from all applicable approaches, the appraiser is then ready to put down 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 a property's valueThere are always mitigating factors such as seller motivation, urgency or 'bidding wars' that may adjust the final price up or down. But the appraised value is typically used as a guideline for lenders who don't want to loan a buyer more money than they could recover in case they had to sell the property again. Here's what it all boils down to, an appraiser from Davis Appraisals will help you get the most fair and balanced property value, so you can make profitable real estate decisions.