Real Estate Appraisals: A Primer

Buying real estate can be the biggest investment some of us might ever consider. Whether it's a primary residence, a seasonal vacation property or an investment, purchasing real property is a detailed financial transaction that requires multiple parties to see it through.

You're likely to be familiar with the parties taking part in the transaction. The real estate agent is the most known face in the transaction. Next, the mortgage company provides the financial capital required to bankroll the deal. And the title company sees to it that all requirements of the exchange are completed and that a clear title passes to the buyer from the seller.

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 in line with the purchase price? In comes the appraiser. We provide an unbiased estimate of what a buyer could expect to pay — or a seller receive — for a property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Brown Appraisal Team will ensure, you as an interested party, are informed.

Appraisals start with the home inspection

Our first duty at Brown Appraisal Team is to inspect the property to determine its true status. We must physically see features, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they really exist and are in the condition a typical buyer would expect them to be. The inspection often includes a sketch of the property, ensuring the square footage is correct and conveying the layout of the property. Most importantly, we look for 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: sales comparison and, in the case of a rental property, an income approach.

Cost Approach

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 build 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 get to know the subdivisions in which they work. They innately understand the value of specific features to the residents of that area. Then, the appraiser researches recent sales in close proximity to the subject and finds properties which are 'comparable' to the property being appraised. By assigning a dollar value to 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 are more accurately in line with the features of subject property.

  • If, for example, the comparable property has a storm shelter and the subject doesn't, the appraiser may deduct the value of a storm shelter from the sales price of the comparable.
  • But, 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.

After all differences have been accounted for, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. When it comes to valuing features of homes in Grapevine and Tarrant, Brown Appraisal Team can't be beat. The sales comparison approach to value is commonly awarded the most weight when an appraisal is for a home purchase.

Valuation Using the Income Approach

A third way of valuing a house is sometimes applied when a neighborhood has a reasonable number of renter occupied properties. In this scenario, the amount of revenue the property generates is factored in with income produced by comparable 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. Note: While this amount is probably the most accurate indication of what a house is worth, it may not be the price at which the property closes. Depending on the specific situations 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 typically used as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. Here's what it all boils down to, an appraiser from Brown Appraisal Team will guarantee you attain the most accurate property value, so you can make wise real estate decisions.