What Are the Parts of an Appraisal?

A home purchase can be the most significant transaction many of us could ever encounter. It doesn't matter if where you raise your family, a second vacation home or a rental fixer upper, the purchase of real property is a detailed transaction that requires multiple parties to see it through.

Practically all the parties participating are quite familiar. The most recognizable person in the transaction is the real estate agent. Next, the bank provides the financial capital needed to fund the deal. And ensuring all details of the exchange are completed and that a clear title transfers from the seller to the purchaser is the title company.

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So, what party is responsible for making sure the value of the real estate is consistent with 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 Appraisals By Janine will ensure, you as an interested party, are informed.

The inspection is where an appraisal begins

To ascertain the true status of the property, it's our responsibility to first complete a thorough inspection. We must see aspects of the property first hand, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they indeed are there and are in the shape a typical buyer 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. Most importantly, the appraiser looks for any obvious features - or defects - that would affect the value of the house.

Once the site has been inspected, an appraiser uses two or three approaches to determining the value of the property: a sales comparison, a replacement cost calculation, and an income approach when rental properties are prevalent.

Cost Approach

This is where we pull information on local construction costs, labor rates and other factors to derive how much it would cost to construct a property comparable to the one being appraised. This estimate commonly sets the maximum on what a property would sell for. The cost approach is also the least used predictor of value.

Paired Sales Analysis

Appraisers get to know the communities in which they appraise. They innately understand the value of particular features to the homeowners of that area. Then, the appraiser researches recent sales in close proximity to the subject and finds properties which are 'comparable' to the property at hand. By assigning a dollar value to certain items such as remodeled rooms, types of flooring, energy efficient items, patios and porches, or additional storage space, we adjust the comparable properties so that they more accurately portray the features of subject.

  • For example, if the comparable property has an irrigation system and the subject doesn't, the appraiser may deduct the value of an irrigation system from the sales price of the comparable.
  • 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.

A valid 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 Appraisals By Janine, we are an authority in knowing the worth of real estate features in Sioux Falls and Lincoln County neighborhoods. The sales comparison approach to value is usually given the most consideration when an appraisal is for a home sale.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - we may use a third way of valuing a property. In this case, the amount of income the property generates is taken into consideration along with income produced by neighboring properties to derive the current value.

Putting It All Together

Examining the data from all approaches, the appraiser is then ready to stipulate 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 valueThere are always mitigating factors such as seller motivation, urgency or 'bidding wars' that may adjust an offer or listing price up or down. But 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 the event they had to sell the property again. The bottom line is, an appraiser from Appraisals By Janine will help you attain the most accurate property value, so you can make the most informed real estate decisions.