What Are the Parts of an Appraisal?

Purchasing a house can be the most serious transaction most of us may ever consider. It doesn't matter if where you raise your family, a second vacation home or an investment, purchasing real property is an involved transaction that requires multiple parties to make it all happen.

The majority of the participants are very familiar. The real estate agent is the most recognizable entity in the exchange. Then, the bank provides the financial capital necessary to finance the exchange. And ensuring all details of the sale are completed and that a clear title transfers to the buyer from the seller is the title company.

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So, what party makes sure the real estate is worth the amount being paid? This is where the appraiser comes in. 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 Provision Appraisals will ensure, you as an interested party, are informed.

The inspection is where an appraisal starts

To determine the true status of the property, it's our responsibility to first conduct a thorough inspection. We must see features first hand, such as the number of bedrooms and bathrooms, the location, living areas, etc, 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 has not been misrepresented and document the layout of the property, the inspection often requires creating a sketch of the floorplan. Most importantly, the appraiser looks for any obvious features - or defects - that would have an impact on the value of the property.

Next, after the inspection, we use 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.

Cost Approach

This is where the appraiser analyzes information on local construction costs, labor rates and other factors to determine how much it would cost to construct a property similar to the one being appraised. This value usually sets the maximum on what a property would sell for. The cost approach is also the least used method.

Paired Sales Analysis

Appraisers are intimately familiar with the subdivisions in which they work. They thoroughly understand the value of specific features to the people of that area. Then, the appraiser looks up recent transactions in the area and finds properties which are 'comparable' to the subject in question. Using knowledge of the value of certain items such as square footage, extra 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.

  • For example, if the comparable has a storm shelter and the subject does not, the appraiser may deduct the value of a storm shelter from the sales price of the comparable.
  • If the subject has an extra half-bathroom and the comparable does not, the appraiser might add an 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 Provision Appraisals, we are an authority in knowing the value of particular items in Springfield and Christian County neighborhoods. This approach to value is usually given the most importance when an appraisal is for a home sale.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - the appraiser may use an additional approach to value. In this scenario, the amount of revenue the property produces is factored in with other rents in the area for comparable properties to derive the current value.

Arriving at a Value Conclusion

Combining information from all approaches, the appraiser is then ready to document an estimated market value for the subject property. It is important to note that while the appraised value is probably the most reliable indication of what a property is worth, it may not be the final sales price. It's not uncommon for prices to be driven up or down by extenuating circumstances like the motivation or urgency of a seller or 'bidding wars'. 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 the event they had to put the property on the market again. It all comes down to this, an appraiser from Provision Appraisals will guarantee you get the most accurate property value, so you can make profitable real estate decisions.