Real Estate Appraisals: A Primer

Their home's purchase can be the biggest transaction some could ever make. Whether it's where you raise your family, an additional vacation home or one of many rentals, purchasing real property is a complex financial transaction that requires multiple parties to make it all happen.

You're likely to be familiar with the parties having a role in the transaction. The real estate agent is the most recognizable face in the transaction. Then, the bank provides the money necessary to fund the exchange. And ensuring all details of the transaction 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, who's responsible for making sure the value of the property is consistent 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 parcel of real estate, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Jacquie Valentine will ensure, you as an interested party, are informed.

The inspection is where an appraisal starts

Our first duty at Jacquie Valentine 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 indeed are present and are in the shape a typical buyer 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, the appraiser identifies 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 real property: sales comparison and, in the case of a rental property, an income approach.

Replacement Cost

Here, we use information on local construction costs, the cost of labor and other factors to calculate how much it would cost to replace the property being appraised. This estimate commonly sets the maximum on what a property would sell for. It's also the least used predictor of value.

Paired Sales Analysis

Appraisers get to know the subdivisions in which they appraise. They thoroughly understand the value of certain features to the residents of that area. Then, the appraiser looks up recent transactions in close proximity to the subject and finds properties which are 'comparable' to the property in question. Using knowledge of the value of certain items such as remodeled rooms, types of flooring, energy efficient items, patios and porches, or extra storage space, we add or subtract from each comparable's sales price so that they more accurately match the features of subject.

  • For example, if the comparable property has a storm shelter and the subject doesn't, the appraiser may subtract the value of a storm shelter from the sales price of the comparable home.
  • 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 could sell for can only be determined once all differences between the comps and the subject have been evaluated. At Jacquie Valentine, we are an authority in knowing the value of real estate features in Nolensville and Williamson County neighborhoods. This approach to value is usually awarded the most weight when an appraisal is for a home exchange.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - the appraiser may use a third approach to value. In this scenario, the amount of income the real estate generates is taken into consideration along with income produced by neighboring properties to give an indicator of the current value.

The Bottom Line

Examining the data from all applicable approaches, the appraiser is then ready to state 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 a property's valueIt's not uncommon for prices to be driven up or down by extenuating circumstances like the motivation or urgency of a seller or 'bidding wars'. 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. At the end of the day, an appraiser from Jacquie Valentine will help you discover the most fair and balanced property value, so you can make profitable real estate decisions.