What Are the Components of an Appraisal?

A home purchase is the most serious transaction most people could ever make. Whether it's where you raise your family, a second vacation property or an investment, the purchase of real property is an involved transaction that requires multiple people working in concert to make it all happen.

It's likely you are familiar with the parties having a role in the transaction. The most familiar person in the exchange is the real estate agent. Then, the mortgage company provides the financial capital required to bankroll the deal. And ensuring all aspects of the transaction are completed and that the title is clear to transfer from the seller to the purchaser is the title company.

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So, what party makes sure the property is worth the amount being paid? In comes the appraiser. We provide an unbiased opinion of what a buyer could 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 Enslen Appraisal Services will ensure, you as an interested party, are informed.

Appraisals start with the inspection

To ascertain the true status of the property, it's our responsibility to first complete a thorough inspection. We must actually see aspects of the property, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they really are present and are in the shape a typical person would expect them to be. The inspection often includes a sketch of the floorplan, ensuring the square footage is accurate and conveying the layout of the property. Most importantly, we identify any obvious amenities - or defects - that would have an impact on the value of the house.

After the inspection, an appraiser uses two or three approaches to determining the value of the property: sales comparison and, in the case of a rental property, an income approach.

Cost Approach

This is where the appraiser analyzes information on local building costs, labor rates and other factors to determine how much it would cost to build a property similar to the one being appraised. This value often sets the upper limit on what a property would sell for. It's also the least used method.

Paired Sales Analysis

Appraisers are intimately familiar with the communities in which they work. They innately understand the value of certain features to the homeowners of that area. Then, the appraiser researches recent transactions in close proximity to the subject and finds properties which are 'comparable' to the home being appraised. Using knowledge of the value of 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 are more accurately in line with the features of subject property.

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

A true estimate of what the subject might 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 Westminster and Adams, Enslen Appraisal Services is second to none. This approach to value is typically awarded the most consideration when an appraisal is for a home exchange.

Valuation Using the Income Approach

A third method of valuing real estate is sometimes employed when a neighborhood has a measurable number of rental properties. In this situation, the amount of revenue the property produces is factored in with income produced by comparable properties to determine 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 in question. The estimate of value at the bottom of the appraisal report is not always what's being paid for the property even though it is likely the best indication of what a property is worth. There are always mitigating factors such as seller motivation, urgency or 'bidding wars' that may adjust an offer or listing price up or down. Regardless, the appraised value is typically employed 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 put the property on the market again. The bottom line is, an appraiser from Enslen Appraisal Services will guarantee you discover the most fair and balanced property value, so you can make profitable real estate decisions.