What Goes Into an Appraisal?

A home purchase can be the most significant transaction most may ever encounter. Whether it's a primary residence, a second vacation property or a rental fixer upper, the purchase of real property is a complex transaction that requires multiple parties 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 lender provides the financial capital required to bankroll the deal. And ensuring all areas of the exchange are completed and that a clear title passes from the seller to the purchaser is the title company.

To learn more about appraising, click here to see a short video or call us today to talk about your specific property.

So, what party is responsible for making sure the real estate is worth the amount being paid? 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 R.M. Rose will ensure, you as an interested party, are informed.

Inspecting the subject property

Our first task at R.M. Rose is to inspect the property to ascertain its true status. We must see features first hand, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they truly are there and are in the condition a reasonable person would expect them to be. To make sure the stated square footage has not been misrepresented and document the layout of the house, the inspection often requires creating a sketch of the floorplan. Most importantly, we look for any obvious features - or defects - that would affect the value of the house.

Once the site has been inspected, we use two or three approaches to determining the value of the property: paired sales analysis and, in the case of a rental property, an income approach.

Cost Approach

This is where we gather information on local building costs, the cost of labor and other factors to determine how much it would cost to build a property similar 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 method.

Paired Sales Analysis

Appraisers get to know the subdivisions in which they appraise. They innately understand the value of specific features to the residents of that area. Then, the appraiser looks up recent transactions in the vicinity and finds properties which are 'comparable' to the home at hand. By assigning a dollar value to 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.

  • For example, if the comparable property has an irrigation system and the subject does not, the appraiser may subtract the value of an irrigation system from the sales price of the comparable home.
  • However, 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.

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 R.M. Rose, we are an authority when it comes to knowing the value of real estate features in Huntingdon Valley and Montgomery County neighborhoods. The sales comparison approach to value is typically awarded the most importance when an appraisal is for a real estate exchange.

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 income the real estate generates is taken into consideration along with other rents in the area for comparable properties to give an indicator of the current value.

Arriving at a Value Conclusion

Combining information from all applicable approaches, the appraiser is then ready to stipulate an estimated market value for the subject property. 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 a property's valueDepending on the specific circumstances 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 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 sell the property again. At the end of the day, an appraiser from R.M. Rose will guarantee you discover the most accurate property value, so you can make the most informed real estate decisions.