What Are the Components of an Appraisal?

Acquiring real estate can be the most important financial decision some people could ever consider. It doesn't matter if where you raise your family, a seasonal vacation property or one of many rentals, purchasing real property is a complex transaction that requires multiple people working in concert to make it all happen.

It's likely you are familiar with the parties taking part in the transaction. The real estate agent is the most familiar person in the exchange. Next, the bank provides the financial capital needed to finance the deal. And the title company sees to it that all areas of the transaction are completed and that the title is clear to pass from the seller to the buyer.

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 makes sure the value of the real estate is consistent with the purchase price? This is where the appraiser comes in. We provide an unbiased estimate of what a buyer might 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 The B's Hive Properties, LLC will ensure, you as an interested party, are informed.

The inspection is where an appraisal starts

Our first task at The B's Hive Properties, LLC is to inspect the property to ascertain its true status. We must physically view aspects of the property, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they really are present and are in the shape a reasonable person would expect them to be. To make sure the stated size of the property has not been misrepresented and illustrate the layout of the home, the inspection often includes creating a sketch of the floorplan. Most importantly, the appraiser looks for any obvious amenities - or defects - that would have an impact on the value of the property.

Back at the office, we use two or three approaches to determining the value of real property: paired sales analysis and, in the case of a rental property, an income approach.

Replacement Cost

This is where we pull information on local building costs, labor rates and other elements to ascertain how much it would cost to construct a property nearly identical to the one being appraised. This figure often sets the upper limit on what a property would sell for. It's also the least used predictor of value.

Sales Comparison

Appraisers get to know the communities in which they work. 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 real estate being appraised. By assigning a dollar value to certain items such as fireplaces, room layout, appliance upgrades, additional bathrooms or bedrooms, or quality of construction, 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 a fireplace and the subject doesn't, the appraiser may deduct the value of a fireplace 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 a certain amount 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. When it comes to associating a value with features of homes in Grayson and Carter, The B's Hive Properties, LLC is second to none. The sales comparison approach to value is typically awarded the most weight when an appraisal is for a real estate purchase.

Valuation Using the Income Approach

A third way of valuing real estate is sometimes employed when a neighborhood has a reasonable number of renter occupied properties. In this situation, the amount of income the real estate yields is taken into consideration along with other rents in the area for comparable properties to determine the current value.

The Bottom Line

Examining the data from all approaches, the appraiser is then ready to put down an estimated market value for the subject property. It is important to note that while this amount is probably the most accurate indication of what a property is worth, it probably will not be the final sales price. 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.Regardless, the appraised value is typically used as a guideline for lenders who don't want to loan a buyer more money than they could recover in case they had to put the property on the market again. At the end of the day, an appraiser from The B's Hive Properties, LLC will guarantee you attain the most accurate property value, so you can make profitable real estate decisions.