Understanding Appraisals

Getting a house is the most serious transaction most people will ever consider. It doesn't matter if it is where you raise your family, an additional vacation property or a rental fixer upper, purchasing real property is a detailed financial transaction that requires multiple parties to pull it all off.

You're probably familiar with the parties taking part in the transaction. The real estate agent is the most familiar person in the exchange. Next, the mortgage company provides the financial capital needed to finance the transaction. The title company ensures that all requirements of the sale 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 today to talk about your specific property.

So, what party makes sure the real estate is worth the amount being paid? In comes the appraiser. Davis & Lagerman provides an unbiased opinion of what a buyer might expect to pay — or a seller receive — for a property, where both buyer and seller are informed parties. A certified, professional appraiser will ensure, you as an interested party, are informed.

Appraisals begin with the property inspection

The first task at Davis & Lagerman, LLC is to inspect the property to ascertain its true status. The appraiser must see aspects of the property hands on, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they truly are there and are in the shape a typical person would expect them to be. The inspection often includes a sketch of the property, ensuring the square footage is accurate and conveying the layout of the property. The appraiser identifies any obvious amenities - or defects - that would affect the value of the house.

Following the inspection, appraisers use two or three approaches to determining the value of the property: a sales comparison, a cost valuation, and an income approach.

Replacement Cost

This is where an appraiser uses information on local construction costs, the cost of labor and other elements to determine how much it would cost to replace the property being appraised.

Paired Sales Analysis

Appraisers become very familiar with the communities in which they appraise. They innately understand the value of specific features to the people 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 upgraded appliances, additional bathrooms, additional living area, quality of construction, lot size, we adjust the comparable properties so that they are more accurately in line with the features of subject property.

Say, for example, the comparable has a fireplace and the subject doesn't, the appraiser may subtract the value of a fireplace from the sales price of the comparable home.
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. The sales comparison approach to value is most often awarded the most weight when valuing single family homes.

Valuation Using the Income Approach

A third way of valuing real estate is sometimes used when an area has a measurable number of rental properties. In this case, the amount of income the property yields is factored in with other rents in the area for comparable properties to give an indicator of the current value.

Reconciliation

Examining the data from all approaches, the appraiser is then ready to put down an estimated market value for the property at hand. At the end of the day, Davis and Lagerman, LLC will help you discover the most accurate property value, so you can make profitable real estate decisions.