Making Sense of the Appraisal Process

A home purchase is the largest transaction some may ever make. It doesn't matter if a primary residence, a seasonal vacation home or an investment, the purchase of real property is a complex transaction that requires multiple people working in concert to see it through.

The majority of the parties involved are very familiar. The real estate agent is the most known entity in the exchange. Then, the bank provides the money necessary to finance the exchange. And ensuring all areas 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 purchase price? In comes the appraiser. 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 Breton Appraisal Services will ensure, you as an interested party, are informed.

The inspection is where an appraisal begins

To determine the true status of the property, it's our duty to first perform 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 exist and are in the shape a reasonable buyer would expect them to be. To ensure the stated size of the property is accurate and document the layout of the property, the inspection often requires creating a sketch of the floorplan. Most importantly, we look for any obvious amenities - or defects - that would affect the value of the property.

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

Cost Approach

Here, we gather information on local construction costs, labor rates and other elements to calculate how much it would cost to construct a property nearly identical to the one being appraised. This figure usually sets the upper limit on what a property would sell for. The cost approach is also the least used predictor of value.

Paired Sales Analysis

Appraisers can tell you a lot about the neighborhoods in which they appraise. They thoroughly understand the value of specific features to the residents of that area. Then, the appraiser researches recent sales in the neighborhood and finds properties which are 'comparable' to the home in question. By assigning a dollar value to certain items such as fireplaces, room layout, appliance upgrades, additional 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.

  • If, for example, 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.
  • 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.

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. At Breton Appraisal Services, we are an authority in knowing the worth of real estate features in Leonardtown and Saint Marys County neighborhoods. This approach to value is usually given the most consideration when an appraisal is for a real estate sale.

Valuation Using the Income Approach

A third method of valuing a house is sometimes used when a neighborhood has a measurable number of rental properties. In this case, the amount of revenue the real estate produces is factored in with other rents in the area for comparable properties to determine the current value.

The Bottom Line

Analyzing the data from all approaches, the appraiser is then ready to state an estimated market value for the property at hand. The estimate of value on 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 the seller's desire to get out of the property, urgency or 'bidding wars' that may adjust the final price up or down. Regardless, the appraised value is often employed as a guideline for lenders who don't want to loan a buyer more money than they could get back in the event they had to put the property on the market again. It all comes down to this, an appraiser from Breton Appraisal Services will guarantee you discover the most accurate property value, so you can make wise real estate decisions.