Real Property Appraisals: A Primer

A home purchase can be the most serious transaction most of us could ever make. Whether it's where you raise your family, a second vacation property or a rental fixer upper, purchasing real property is a complex transaction that requires multiple people working in concert to pull it all off.

The majority of the participants are quite familiar. The most known entity in the transaction is the real estate agent. Next, the mortgage company provides the financial capital needed to finance the transaction. The title company sees to it that all details of the exchange are completed and that the title is clear to transfer from the seller to the purchaser.

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? This is where the appraiser comes in. 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 Hillman Appraisal Services will ensure, you as an interested party, are informed.

Appraisals begin with the inspection

To determine the true status of the property, it's our responsibility to first perform a thorough inspection. We must actually see features, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they indeed are there and are in the condition a reasonable person would expect them to be. To ensure the stated size of the property has not been misrepresented and convey the layout of the house, the inspection often includes creating a sketch of the floorplan. Most importantly, the appraiser identifies any obvious amenities - or defects - that would have an impact on the value of the property.

Following the inspection, an appraiser uses two or three approaches to determining the value of real property: a sales comparison, a replacement cost calculation, and an income approach when rental properties are prevalent.

Cost Approach

Here, we analyze information on local building costs, labor rates and other factors to derive how much it would cost to replace the property being appraised. This value often sets the maximum on what a property would sell for. It's also the least used method.

Sales Comparison

Appraisers are intimately familiar with the communities in which they appraise. They innately understand the value of certain features to the people of that area. Then, the appraiser researches recent sales in the vicinity and finds properties which are 'comparable' to the real estate in question. Using knowledge of the value of certain items such as upgraded appliances, extra bathrooms, additional living area, quality of construction, lot size, we add or subtract from each comparable's sales price so that they more accurately match the features of subject property.

  • If, for example, the comparable has an extra half bath that the subject does not, the appraiser may deduct the value of that half bath from the sales price of the comparable.
  • However, if the subject property 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. When it comes to putting a value on features of homes in Palmyra and Marion, Hillman Appraisal Services can't be beat. This approach to value is typically awarded the most consideration when an appraisal is for a real estate exchange.

Valuation Using the Income Approach

A third way of valuing real estate is sometimes applied when an area has a measurable number of renter occupied properties. In this scenario, the amount of income the real estate produces is taken into consideration along with income produced by nearby properties to derive the current value.

The Bottom Line

Combining information from all approaches, the appraiser is then ready to state an estimated market value for the subject property. The estimate of value on the appraisal report is not necessarily what's being paid for the property even though it is likely the best indication of a property's valueThere are always mitigating factors such as the seller's desire to get out of the property, urgency or 'bidding wars' that may adjust an offer or listing price up or down. But the appraised value is often 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 Hillman Appraisal Services will help you discover the most fair and balanced property value, so you can make wise real estate decisions.